Does High Home-Ownership Impair the Labor Market?

Abstract

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 homeownership 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.

Home-ownership and the Labour Market: Evidence from Rental Housing Market Deregulation

“…Since Oswald's (1996) influential paper documenting this relationship, several studies have either replicated Oswald's empirical analyses with other datasets or tested related theoretical hypotheses using micro-economic data. Several studies using regional or cross-country data lend some support to the claim that a higher regional home-ownership rate leads to a higher rate of unemployment (Blanchflower and Oswald, 2013;Coulson and Fisher, 2009;Costain and Reiter, 2008;Munch et al, 2006;Di Tella and MacCulloch, 2005;Green and Hendershott, 2001;Nickell, 1998). Oswald (1996) hypothesises that this is caused by lesser geographical mobility of home-owners relative to renters.…”

“…Oswald (1999) and Blanchflower and Oswald (2013) discuss various potential labour market effects of home-ownership, some of which involve external impacts. The externalities are related to labour immobility and not-in-my-backyard (NIMBY) behaviour.…”

Home-ownership, unemployed’s job search behavior and post-unemployment outcomes

“…If people lose their job and if owning a house limits their mobility and hence reduces their opportunities to find a new job, home-ownership even aggravates the poor economic situation of these individuals. In fact, a recent study by Blanchflower and Oswald (2013) has found evidence for such negative externalities resulting from lower levels of labor mobility, longer commuting times and fewer new businesses. Furthermore, during the recent economic crisis housing prices have fallen dramatically in the US, which may have led to a "lock in" effect due to financial constraints faced by those whose housing debt exceeds the market value of their homes, although a recent study by Valetta (2013) did not find evidence for this.…”

Mortgage Debt and Entrepreneurship

“…In contrast to Davidoff, we analyse occupational choice conditional on housing tenure. Our work also relates to the literature on the economic impact of homeownership -for example on unemployment (Oswald, 1996;Blanchflower and Oswald, 2013) or on business start-ups (Fairlie, 2010;Wang, 2012). However, our focus is on the role of financial leverage rather than homeownership per se.…”