Does High Home Ownership Lead to Higher Unemployment?

That is the surprising question asked (and answered) by David Blanchflower and Andrew Oswald in a new working paper. If this effect is real, and if the mechanisms by which it occurs are true, then this paper is hugely important for policymakers, civic planners, and the rest of us:

We explore the hypothesis that high home-ownership damages the labor market. Our results are relevant to, and may be worrying for, a range of policy-makers and researchers.  We find that rises in the home-ownership rate in a U.S. state are a precursor to eventual sharp rises in unemployment in that state.  The elasticity exceeds unity: a doubling of the rate of home-ownership in a U.S. state is followed in the long-run by more than a doubling of the later unemployment rate.  What mechanism might explain this? We show that rises in home-ownership lead to three problems: (i) lower levels of labor mobility, (ii) greater commuting times, and (iii) fewer new businesses. Our argument is not that owners themselves are disproportionately unemployed. The evidence suggests, instead, that the housing market can produce negative ‘externalities’ upon the labor market. The time lags are long. That gradualness may explain why these important patterns are so little-known.

Blanchflower, a Dartmouth economist who regularly writes for the Independent (U.K.), recently published an op-ed in that paper which applied these findings to the European situation:

Unemployment is a major source of unhappiness and mental ill-health.

Yet after a century of economic research, the determinants of unemployment are still imperfectly understood, and unemployment levels in the industrialised nations are around 10 per cent, with some over  20 per cent.

The historical focus of the literature has been on which labour market characteristics – trade unionism, unemployment benefits, job protection, etc – are particularly influential. Contrary to what many on the right have claimed, they aren’t.

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  1. Eric M. Jones says:

    Ya know, there’s a lot to be said for living in a double-wide trailer.

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  2. Roy says:

    Asked to comment, the spokesperson for the National Association of Realtors offered this surprising statement: “There’s never been a better time to buy”.

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  3. anonymous says:

    Have they explored the possibility that high home ownership causes construction restrictions, which then cause the other problems that lead to unemployment? Because if this is the case, then lifting these restrictions could by itself have a very positive effect (not to mention many others that Edward Glaeser and Matt Yglesias talk about thoroughly).

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  4. James says:

    “…a doubling of the rate of home-ownership in a U.S. state is followed in the long-run by more than a doubling of the later unemployment rate.”

    I am very puzzled by this statement. Per US census data, no state (other than the District of Columbia, which is an obvious special case) had a home ownership rate less than New York’s 55%. From a quick scan of census data, you have to go back to 1950 to find states with home ownership rates below 50%, and those states have rates in the 60-70% range as of 2010. So how then is it possible for any state’s rate to have doubled?

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    • Cjl73 says:

      It’s just an extrapolation from smaller numbers

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      • Jamesq says:

        If that’s the case, then assuming the relationship is linear, an actual change in home ownership rate from 60% to 65% – a very large change for a period of less than a decade or so – would correspond to a change in unemployment rate from say 6% to 6.5%.

        Now I think that’s a pretty small effect, and scarcely seems to justify the authors’ scare talk of “…more than a doubling of the later unemployment rate”.

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    • pawnman says:

      Rate, not percentage. Say you have 60% home ownership. The next year, 66% home ownership – a 10% increase (not exact, but follow the idea, not the math). Then later down the road, you will have more than a 10% increase in unemployment.

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  5. ajb says:

    I don’t see why this is so surprising. People want to stabilize their lives and the way they do that is investing in certain types of arrangements that impose substantial “rigidities” or fixed costs. You might as well say that strong family ties or community feeling enhance unemployment. After all, it is partly because Americans have fewer extended family ties and obligations that they’ve been so mobile. In cultures with strong traditional ties and strong local culture, people are loathe to move even for a very good job. A house is a lot like a strong family relationship except its effects are more financial than social. But in the end, any strong ties with high fixed costs will slow one’s ability to be flexible in the labor market.

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  6. Peter says:

    Another possibility is that the increase in home ownership is accosiated with stronger economy; then the recession follows.

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  7. Maria says:

    Correlation does not mean causation. That’s the first thing I was taught in statistics class. I would think unemployment to be a complicated, multi-factorial issue. I also wonder why no one studies the rates of homelessness in these countries or the amount of people forced to double and triple up in homes.

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  8. Daniel Starr says:

    This is an odd statement from the op-ed; presumably one has to have a job in order to purchase a home. If they had said that high rates of home ownership would prevent UE from decreasing (due to mobility, etc) then it would be more understandable. But merely correlating INCREASED UE with increased rates of ownership seems a tenuous link.

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