Buy a House, Lose Your Job?
Governments around the world
encourage homeownership in the belief that it fosters prosperity. But
unemployment statistics tell a different story. Higher rates of homeownership
seem to correlate with higher rates of unemployment. In Switzerland, where
about one-fourth of citizens own their homes, unemployment is only 2.9 percent.
In Spain, where homeownership is three times as common, unemployment is a
staggering 18.1 percent. Portugal's homeownership is midway between
Switzerland's and Spain's, and unemployment is a low-to-middling 4.1
percent.
These
numbers come from a recent paper packed with evidence that homeownership and
unemployment generally move in tandem. The author, Professor Andrew Oswald of
the University of Warwick, points to similar patterns all over the
industrialized world. The patterns show up in comparisons between countries
(such as Spain and Switzerland) and in comparisons between regions within
countries (such as East Anglia and Yorkshire, or Iowa and Nevada), and they
show up whether you look at snapshots in time or at trends that span
decades.
The data suggest that, on average, a 10-percent increase in
the rate of owner occupation is associated with a 2-percent increase in the
rate of unemployment. If that's right, it accounts for a substantial fraction
of the world's joblessness. What's going on here? Does homeownership cause
unemployment? Does unemployment cause homeownership? Oswald endorses the first
explanation--homeownership causes unemployment by tying people down
geographically. The jobless homeowner looks for jobs within commuting distance
of his home. The jobless renter is willing to move to where the jobs are.
That
theory is testable, because it predicts that homeowners suffer longer
periods of unemployment, as opposed to more frequent periods of
unemployment. And in fact, Oswald's theory passes at least one version of that
test: As homeownership has risen over the past few decades, there has been an
increase in time spent unemployed but little change in the frequency of job
loss.
Alternative theories are possible. Maybe the
causality goes backward: Unemployment causes high rates of homeownership. My
irreverent colleague Mark Bils points out that if you lose your job, you'll be
spending a lot of time at home, and you'll want to buy a nice house. A more
plausible explanation is that when jobs dry up, renters move out, so that only
homeowners remain. The other side of that coin is that booming areas tend to
draw a lot of newcomers who want to rent for a while.
But when
two things occur in tandem, it isn't always right to ask which is the cause and
which the effect. After all, mistletoe and eggnog tend to appear in the same
month, but neither causes the other. Instead, they're brought on simultaneously
by the Christmas season. Perhaps it's the same with unemployment and
homeownership. But then what plays the role of Christmas, the background force
that causes both phenomena? The most obvious candidates are age and wealth,
either of which can increase the odds of both homeownership and long-term
unemployment (the young and the poor scramble harder for jobs).
My cynical colleague Alan Stockman suggests an alternative
candidate, namely, the regulatory climate. He points out that where regulators
run amok, they tend to disrupt the rental market and the job market
simultaneously. Consider the housing market in New York City, where rental
apartments are outrageously expensive. That's largely because New York
real-estate laws make it nearly impossible to evict a bad tenant, so landlords
are skittish about leasing to strangers. At the same time, labor laws make it
hard to fire a bad employee, so employers are conservative in their hiring.
It's also
possible that the numbers themselves are wrong, because of some hidden bias in
the way they're collected. Maybe when you're counting the unemployed, it's easy
to overlook a transient and hard to overlook a homeowner. So you can tell a lot
of different stories to explain Oswald's numbers. But for the sake of
discussion, let me go back to the first (and, I think, most interesting) story:
Homeowners stay unemployed longer because homeowners are less mobile. If that
story is true, what is its moral?
Oswald speculates that mass unemployment exists
in the world today because of the rise in homeownership and the decline in
private renting--trends that are, in turn, the results of long-running attempts
by most Western governments to raise the degree of homeownership (largely
through subsidies). Where those attempts have been most successful, the
efficiency of labor markets has declined most dramatically.
You could
interpret that as a story about well-meaning do-gooders who hurt the very
people they're trying to help, but such an interpretation would be hard to
defend. Surely home buyers are well aware that they're sacrificing mobility.
That's a voluntary sacrifice, and so (in the judgment of those who choose to
buy) it must be more than compensated for by the benefits of ownership. In
other words, high unemployment might be the price we pay for owner occupancy,
but apparently owner-occupants are convinced that it's a price worth
paying.
That analysis is guided by an economist's faith in the
maxim that people are generally pretty good at looking out for their own
interests. The companion maxim is that people often make no attempt at all to
look out for the interests of others. So if we really want to pull every
possible moral out of our story, we should think about the other people whose
interests are at stake when you decide to buy a house. In other words, we
should think about your children.
Residential stability is
extremely important for children. If your family moves during your school years
(ages 6-15), your chance of graduating high school falls by 16 percent, the
chance that you'll be "economically inactive" (out of school and out of
work) at age 24 rises by 10 percent--and, if you are female, your chance of
getting through your teens without an out-of-wedlock birth falls by 6 percent.
(I learned this from the book Succeeding
Generations , by the
economists Robert Haveman and Barbara Wolfe.) Like Oswald's numbers on housing
and unemployment, these numbers might allow a variety of explanations--like
"families that move are more likely to be poor, and that's why their kids don't
do as well." But in fact Haveman and Wolfe's statistical analysis is designed
to rule out this and similar alternative theories, leaving us to conclude that
the moves themselves are harmful.
Perhaps when parents move,
they carefully weigh the damage to their children against competing benefits
and act in the interests of the entire family. Or perhaps when parents move,
they selfishly put their own interests ahead of their children's. In the latter
case, a government that cares about children would want to discourage household
moves (say through subsidies to homeownership), even at the cost of higher
unemployment.
