Economists have long wondered whether higher rates of homeownership can actually make unemployment even worse. One possibility is that if people are tied down to their homes, it's harder to move to find a suitable job. So maybe more people should rent.
Back in the 1990s, British economist Andrew Oswald first showed that higher levels of homeownership were correlated with higher levels of unemployment across European countries and within the United States. Other possible variables — such as unionization rates — didn't explain the variation in joblessness nearly as well.
The idea that owning a home makes it harder to find a job because of higher moving costs is now known as "Oswald's hypothesis." And it's come in for plenty of scrutiny. Some economists, for instance, have argued that this effect might be counterbalanced by the fact that people who own homes have denser local networks, which makes it easier for them to find jobs in their local area.
Now, however, Andrew Oswald and Dartmouth's David G. Blanchflower have a brand new working paper (pdf) suggesting that homeownership has an even bigger and wider effect on unemployment than anyone has realized. Here are the key points:
We find that rises in the home-ownership rate in a US state are a precursor to eventual sharp rises in unemployment in that state. ...
A doubling of the rate of home-ownership in a US state is followed in the long-run by more than a doubling of the later unemployment rate.
Now here's the interesting part: Blanchflower and Oswald aren't arguing that the owners of homes themselves are disproportionately unemployed. (In fact, homeowners tend to make out okay.) Instead, the authors argue that homeownership has a much broader — and negative — impact on the labor market as a whole.
Why is that? The authors find that higher levels of homeownership in a state appear to be associated with lower levels of labor mobility, higher commute times, and fewer new businesses created. Taken together, those three factors tend to increase the unemployment rate. (Why fewer new businesses? One possibility is that homeowners are more likely to use zoning to restrict the activities of firms, though that's just a hypothesis.)
Now, Blanchflower and Oswald do try to check for confounding variables, but they're very explicit that they want other researchers to scrutinize their results, in case they missed something. The stakes, after all, are quite high. Plenty of countries have expensive policies to promote homeownership — the U.S. government spends $70 billion per year on the mortgage-interest deduction alone. Yet no one really knows if homeownership kills jobs.
"Economists currently lack a full understanding of the interplay between the housing and labor markets," the authors conclude. "We believe these issues demand the profession’s attention."
--Here's another recent paper by Finnish economist Jani-Petri Laamanen finding similar effects in Europe.
--Andrew Oswald and Richard K. Green recently had an interesting debate in the Economist about whether governments should be promoting homeownership — and they delve a bit into the jobs question.
--Back in 2010, Paul Wiseman took a long and critical look at all the different policies the United States has in place to encourage homeownership. By contrast, rental assistance is a much smaller part of the budget.