Wednesday, June 19, 2013

Home Ownership: Beware What You Wish For

I’m ambivalent on the issue of home ownership – on the one hand, I recognise that society acknowledges the basic human right to adequate shelter. On the other hand, the economist in me sees the opportunity and financial costs involved…and doesn’t think that the right to shelter is equivalent to the right to own it.

And here’s one paper that supports the latter view, looking at the costs to society as a whole (abstract):

Does High Home-Ownership Impair the Labor Market?
David G. Blanchflower, Andrew J. Oswald

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 home- ownership 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. That gradualness may explain why these important patterns are so little-known.

The paper doesn't claim to fully understand the mechanisms involved, but they document data both in the US and Europe that show higher levels of home ownership and subsequent higher levels of unemployment - the lags go for as long as five years before unemployment starts rising.

The paper does support the hypothesis that labour mobility falls, that commutes get longer, and that new business formation slows. All of these could and should have an impact on raising unemployment, especially if workers become more highly specialised.

But even if the exact causal mechanisms aren’t fully explained, the correlation itself should be troubling, and a bi of a warning sign for Malaysia and Malaysians. In the public pressure to improve home affordability and increase home ownership, we could be setting ourselves up for a fall.

Technical Notes

Blanchflower, David G. & Andrew J. Oswald, "Does High Home-Ownership Impair the Labor Market?", NBER Working Paper No. 19079, May 2013


  1. Hisham,

    Check out my article on Malaysian home ownership.


  2. Justin, thanks. Agree with you wholeheartedly.