A strong correlation between high home-ownership levels and high unemployment rates is shown in a recent study co-authored by David Blanchflower and Andrew Oswald.
Using unemployment and home-ownership statistics from 1900 to 2010 for the states of the USA except Alaska and Hawaii along with data gathered from millions of randomly sampled Americans, the study found that rises in home-ownership in a state are followed by substantial increases in the unemployment rate after a lag of up to five years.
“It suggests that a doubling of home-ownership in a state would be associated in the steady state with more than a doubling of the unemployment rate,” says the paper.
For example, the study shows that the five states that had the highest increase in home ownership (an average of +23% in Alabama, Georgia, Mississippi, South Carolina and West Virginia) since 1950 had a rise in the unemployment rate of 6.3% between 1950 and 2010. In contrast, the five states that had the lowest home ownership increase 1950-2000, saw unemployment rise just 3.5% over the 60 years from 1950-2010.
The study also found that high home-ownership leads to people staying put and commuting further and further to jobs, in turn creating cost and congestion for firms and other workers. It also precipitates zoning restrictions and other NIMBY (not in my back yard) activities where home owners block new businesses. It fosters ossification of mobility and reduces dynamism in the economy.
“We have been collecting data for decades now and it is appropriate to go public on the results," said Oswald: "We find that a high rate of home-ownership slowly decimates the labour market. The USA makes a valuable ‘laboratory’ in which to study this issue, because the different states have a language, currency, and culture in common.”
The authors say that while “the data used in this paper are almost wholly from the United States... our conclusions may have wider implications.” They believe their ideas apply equally well to Europe where countries like Spain and Greece which have high home-ownership (80%+) also have high unemployment (20%+) and countries like Switzerland, Germany and Austria which have low home-ownership have correspondingly also low unemployment rates.
The release of the Blanchflower and Oswald study coincides with the release of a similar work in Finland, done independently by Jani-Petri Laamanen at the University of Tampere, which draws the same conclusions.
Countries which pursue policies to promote more home-ownership may unintentionally be adding to their unemployment problem. Providing incentives for investing in affordable rental property seems a good way to address the problem.