Tuesday, June 18, 2013

Own up to it!

Home ownership might cause unemployment, according to this from Warwick's Andrew J. Oswald;
Switzerland has 3% unemployment and 30% home ownership, while Spain has 25% unemployment and 80% home ownership.
Not convinced yet? (and Oswald doesn't think you should be by that);
... we take many decades of data from US states, which as a federally organised nation state, offers a useful spatial mini-laboratory for econometric work on unemployment rates, and we then estimate state panel unemployment equations. We adjust for state fixed effects, for year dummies, and for the demographic and educational composition of the people who live in the different states.....
  • A doubling of home ownership is associated with more than a doubling of the long-run unemployment rate.
We are not sure what explains our correlation. But we show, using various micro data sets, that higher home ownership leads to lower labour mobility, greater commute-to-work times, and a lower rate of business formation. Our hunch, on which further work will be needed, is that the housing market exerts powerful externalities upon the labour market. This would not have surprised Milton Friedman, who, in his writings on the natural rate of unemployment, emphasised the need for labour mobility in an efficient economy.
Does it surprise anyone that there's a 'road...hell...good intentions' argument to be made?
Tax breaks offered by many governments acted to destroy large parts of the early 20th century private rental housing market. If we are right, these kind of tax breaks have worrying consequences.
We believe these issues merit more attention from economists.
No kidding.

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