High home ownership linked to unemployment

High levels of home ownership are strongly linked to an increase in unemployment, according to research by Warwick University’s Andrew Oswald.

The economics professor looked at data from millions of Americans in order to reach his conclusion. The data was taken from all U.S. states except Alaska and Hawaii, from as far back as 1950.

While there is a lag from ownership levels to unemployment rates of up to five years, the evidence is robust. Doubling home ownership in a state can lead to more than a doubling of the jobless rate.

The research was carried out alongside David Blanchflower, professor of Economics at Dartmouth College, New Hampshire. An independent study in Finland has also released similar findings.

Mr Oswald suggests that the results may be able to go some way in explaining the level of unemployment in Spain – the country has 80 percent home ownership and suffers from 25 percent unemployment.

This is contrasted to countries with both lower home ownership and unemployment rates, such as Germany and Switzerland. 30 percent of Swiss citizens own their homes and the country has a jobless rate of only three percent.

The reason for the link between the two is that home ownership reduces mobility in the labour market. People who own a home dislike moving from the area in search of work and will be put off by long commuting times.

Another potential reason for the connection between home ownership and unemployment is that homeowners tend to oppose new businesses being set up in their area – known as ‘Not in My Back Yard’ in Britain.

Mr Oswald said: “I have become convinced that by boosting home ownership we have ruined our labour market.”

He comments that the results should be worrying for countries that promote home ownership through tax breaks and subsidised mortgages.

Mr Oswald argues: “In Britain we have incredibly cheap mortgages and we’re giving help-to-buy inducements on top of that in a world where house prices are already rising far above the rate of inflation that the Bank of England says it wants. It’s unbelievably illogical.”

When asked by the Boar whether the British government should discourage home ownership due to the findings, Mr Oswald answered: “Absolutely. It will eventually be widely realised – I may be pushing up the daisies by then – that we have ruined our labour markets in the industrialised world by giving huge subsidies to home ownership.

“It is the world’s most-subsidised commodity.”

Mr Oswald has been working on the study since 1996, when he introduced it in his professorial inaugural lecture because he thought he “should do something unusual”. The ideas have subsequently become famous worldwide.

He told the Boar: “Unemployment is a key source of human unhappiness. We need to get to the bottom of why it is so high.”