The danger of high home
ownership: Greater
unemployment
Andrew Oswald (Warwick and CAGE)
Joint work with Danny Blanchflower
The background since WW2
OECD unemployment was 3% and is
now 10%+
OECD unemployment was 3% and is
now 10%+
Standard explanations:
• trade unions became too powerful
• unemployment benefits too generous
• labour markets too inflexible.
We want to consider something
different
We want to consider something
different – that economists and policymakers need to focus on the way the
housing market works.
Often-forgotten facts
Often-forgotten facts
• In 1950, most British citizens were
private renters.
Often-forgotten facts
• In 1950, most British citizens were
private renters.
• Today, nearly 70% of Swiss people are
private renters.
Friedman (1968)
Friedman (1968)
• “The ‘natural rate of unemployment’ ... is the
level that would be ground out by the
Walrasian ... equations, provided there is
embedded in them the actual ...
characteristics of the labour and commodity
markets, ... market imperfections, the costs
of gathering information, the costs of
mobility, and so on.”
Let’s start
Let’s start
... with some simple correlations
Home-ownership rates plotted against
unemployment rates in
27 EU & OECD countries
30
Unemployment rtae (%)
25
y = 0.1675x - 2.3113
R² = 0.1619
20
15
10
5
0
40
50
60
70
Home Ownership Rate (%)
80
90
14
100
Euro area alone
Over half a century in the US
50 year changes (1950-2000) in home ownership rates and 60 year
changes in unemployment rates (1950-2010)
Alabama, Georgia,
Mississippi, South Carolina,
West Virginia
average rise in home
ownership rates =+23%
Chane in unemployment rates (percentage points)
7
6
5
4
California, North Dakota,
Oregon, Washington,
Wisconsin average rise in
home owenership rates=
+1%
3
2
1
0
Lowest five states
Highest five states
Changes in home ownership rates
Long time-differences in US state data
Long time-differences for Swiss cantons
Is there any quasi-experimental evidence?
Is there any quasi-experimental evidence?
• Yes. Recently released in Finland.
“Home-ownership and the Labour Market:
Evidence from Rental Housing Market
Deregulation”
Jani-Petri Laamanen
In our own work
In our own work
• Movements in the unemployment rate
in state j are explained in large part by
movements in the home-ownership rate
in state j some years earlier.
• The ‘elasticity’ is huge. It exceeds 1.
Is this pattern robust across different
time periods and different parts of the
USA?
Is this pattern robust across different
time periods and different parts of the
USA?
Yes, if we split the data at year 2001.
Is this pattern robust across different
time periods and different parts of the
USA?
Yes, if we split the data at year 2001.
Yes, if we split the data into different
areas of the USA.
What might be going on?
Home ownership leads to:
• Lower geographical mobility
• Longer commuting times
• Fewer new businesses
Why?
It is not that being a home owner is
‘making’ me unemployed.
Why?
Why?
It is hard to see how this could be in
some sense Keynesian or all about
‘aggregate demand’.
Idea 1
• High home-ownership encourages
greater commuting, and that increases
congestion costs for other workers and
their employers.
Idea 2
• High home-ownership reduces
mobility, and that has deleterious
knowledge-flow ‘externalities’ on
everyone’s productivity.
Idea 3
• High home-ownership tends to block
new business development (zoning and
NIMBY pressures).
The main finding
There is a profound link between high
home ownership and later high
unemployment.