How more homeownership may lead to unemployment

Nov 12, 2013, 8:51 PM | Updated: 8:51 pm
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Traditional wisdom says homeownership is the central hub of the American Dream. But a recent study raises questions that it may, in fact, kill that dream for many people.

As Stephen Dubner at freakonomics.com said in an early report on this in June: “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.”

The report comes from David G. Blanchflower, an economics professor at Dartmouth, and Andrew J. Oswald, an economics professor at the University of Warwick in England. The hypothesis, sometimes called the “Oswald thesis,” has been around for more than a decade, even though this iteration and study by Oswald and Blanchflower is new.

Their report says: “Our study provides evidence consistent with the view that the housing market plays a fundamental role as a determinant of the rate of unemployment. … There are four main conclusions. First, we document a strong statistical link between high levels of homeownership in a geographical area and high later levels of joblessness in that area. … Second, we show that, both within states and across states, high homeownership areas have lower labor mobility. … Third, we show that states with higher rates of homeownership have longer commute times. … Fourth, we demonstrate that states with higher rates of homeownership have lower rates of business formation.”

In The Independent, study co-author Blanchflower explains: “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. 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. We also find that high homeownership lowers employment rates. These effects do take some time to develop — roughly of the order of five years.”

Floyd Norris at the New York Times is careful to point out that the study “does not argue that homeowners are more likely to lose jobs than are renters.”

As Blanchflower says in The Independent, “(Homeowners) have higher employment rates than renters.”

Norris in the New York Times explains why more homeowners may mean fewer jobs: “The professors say they believe that high homeownership in an area leads to people staying put and commuting farther and farther to jobs, creating cost and congestion for companies and other workers. They speculate that the role of zoning may be important, as communities dominated by homeowners resort to 'not in my backyard' efforts that block new businesses that could create jobs.”

A Reuters article in Business Insider paraphrases Oswald: “Oswald said the research may go some way to explaining why Spain, with a homeownership rate of 80 percent, has unemployment above 25 percent, whereas Switzerland, with a 30 percent ownership rate, has a jobless rate of just 3 percent.”

EMAIL: mdegroote@deseretnews.com

Twitter: @degroote

Facebook: facebook.com/madegroote

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How more homeownership may lead to unemployment