Homeownership Equals Unemployment

TheStreet.com

NEW YORK (MainStreet)—Buying into the American Dream of homeownership may trigger the nightmare of rising unemployment. It's a startling hypothesis long considered by economists and reinforced in a new study by David G. Blanchflower, professor of economics at Dartmouth and Andrew J. Oswald, professor of economics at the University of Warwick in England. The research concludes that there is "a strong statistical link between high levels of home-ownership in a geographical area and later high levels of joblessness in that area."

The cause and effect is not immediately apparent, however, as the correlation between high levels of homeownership and resulting elevated levels of unemployment can take up to five years to be evident.

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Other findings in the study point to high home-ownership areas as having "lower labor mobility" – people are less likely to move to find a new job – as well as longer commute times and fewer new businesses. The researchers admit that the last conclusion seems most counterintuitive.

A homeowner resisting relocation to take a new job because of moving expenses makes sense, as does the possibility of longer commutes, as "the places with high home-ownership will see more workers staying put physically but working further from their family home." But the conclusion that areas with high levels of home ownership somehow impede the growth of new businesses is confounding. The professors can only guess that the anomaly might be the result of zoning restrictions and a "not in my backyard" attitude resulting in "a lower degree of tolerance for new businesses."

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Blanchflower and Oswald are quick to add, "It is important to emphasize that our study does not claim that homeowners are unemployed more than renters (very probably they are not). Nor is it an attempt to build on the idea that homeowners are less mobile than renters (though they probably are). Instead, the patterns documented in the paper are consistent with the possibility that the housing market can generate important negative externalities upon the labor market."

In other words, it's the renters who are losing the jobs.

"The results in this paper are consistent with the view that high home-ownership impairs the vitality of the labor market and slowly grinds out greater rates of joblessness," the researchers conclude.

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Noting that the U.S. government spends billions of dollars a year giving tax-breaks as an incentive for homeownership, Blanchflower and Oswald warn, "Our findings should be worrying for policy-makers. High levels of home-ownership do not destroy jobs this year; they tend to do so, on our estimates, the year after next."

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