Can the drop in homeownership be good news?
When President George W. Bush followed his predecessor Bill Clinton in pushing homeownership, one loud dissenter was British economist Andrew Oswald, who argued that far from improving the economy--as Bush (and Clinton before him) said it would--homeownership hurts the economy in the long run.[IMAGE]
Oswald produced data to show that every 5 percent rise in homeownership results in a 1-percentage point increase in the unemployment rate. Oswald made his case using state-by-state data, ignoring the fact that as homeownership was increasing nationally, the unemployment rate was falling.
As the economy began to turn, crushed by the housing bubble, challenges to homeownership started to gain support. Underwater homeowners in states with high unemployment rates, the argument went, were trapped: They couldn't sell their homes and therefore couldn't relocate to states with lower unemployment rates.
Now, Oswald and Dartmouth Economics Professor David Blanchflower are at it again in a new paper released by the National Bureau of Economic Research with arguments even they admit may be shallow. Homeownership, they say in their new paper, ""leads to three problems: lower levels of labor mobility, greater commuting times, and fewer new businesses.""
Their findings don't seem to line up with a study by ""CareerBuilder.com and Economic Modeling Specialists,"":https://themreport.com/articles/study-employment-housing-growth-see-mutual-boost-2013-06-06 which saw a positive relationship between housing and the job market.
In their study, Blanchflower and Oswald try to show not the impact of employment or unemployment on other aspects of parts of the economy but rather the impact of those ""externalities"" on unemployment.
""Unemployment,"" they wrote, ""is a major source of unhappiness, mental ill-health, and lost income. Yet after a century of economic research on the topic, the determinants of the equilibrium or 'natural' rate of unemployment are still imperfectly understood.""
So, they tried to look at the topic from the outside in.
""Our study,"" they said, ""provides evidence consistent with the view that the housing market plays a fundamental role as a determinant of the rate of unemployment.""
Using data on two million randomly sampled Americans, they built models estimating the number of weeks worked, the extent of labor mobility, the length of commuting times, and the number of businesses and reached four conclusions:
* A ""strong statistical link between high levels of home-ownership in a geographical area and high later levels of joblessness in that area.""
* High homeownership areas have lower labor mobility.
* States with higher rates of homeownership have longer commute times.
* States with higher rates of homeownership have lower rates of business formation.
Though their ""conclusions"" may come from a ""statistical link,"" they offer little evidence to suggest any causation between the sets of numbers.
Indeed, they seem to undermine their own findings, acknowledging that the ""link"" between homeownership and unemployment could take as long as five years to develop, during which time other factors may have affected both homeownership and employment.
They acknowledge too they ""are unable, in this paper, to say exactly why, or to give a complete explanation for the [lower labor mobility] patterns.""
Longer commute times, they say, result from greater congestion resulting from increased construction of both homes and businesses, but that would also mean more--not fewer--jobs.
The congestion could just as easily be the consequence of increased construction, which would serve to expand, not contract, the labor market.
The lower rate of business foundation, they suggest, ""might be the result of zoning restrictions and NIMBY [not in my backyard] effects ... that are rational for homeowners,"" but then they add, ""that channel can be only a conjecture.""
In their paper, Oswald and Blanchflower actually dismiss the argument that when the housing bubble collapsed, underwater homeowners were trapped in their homes.
""A number of researchers later examined micro data,"" they wrote. ""The ensuing literature concluded that the bulk of the evidence is against the idea that home-owning individuals are unemployed more than renters.""
To their credit, Blanchflower and Oswald acknowledge the possibility of flaws in their study.
""Our analysis has a number of important weaknesses,"" they said. ""We are unable to assess the effect of exogenous changes in the structure of the housing market. We have had to rely, instead, upon an examination of the lagged pattern of unemployment observed a number of years after a movement in a state's rate of homeownership. ... This is potentially a weakness and means that some underlying omitted variable, or causal force, might be responsible for the link between [homeownership] and [unemployment]. That would not make the patterns in this paper uninteresting ones, but it would mean that a key variable is missing from the analysis.""
A couple of months ago, the economics profession was rocked by a controversy over a paper written by Harvard professors Carmen Reinhart and Kenneth Rogoff, who left key variables out of a study that purported to show that heavy national debt burdens lead to slow growth and even negative growth. On the basis of their study, Reinhart and Rogoff said the United States, a nation deeply in debt, should undertake severe spending cuts. Fortunately, Blanchflower and Oswald stopped short of any policy recommendations in their paper.
_Hear Mark Lieberman on P.O.T.U.S. (Sirius-XM 124) on Friday at 6:20 a.m. Eastern._
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