Home Ownership Rates Can Be Too High

Felix Salmon reminds us of an interesting piece of research: that home ownership rates can in fact be too high.

A study of several major developed economies between 1960 and 1996, by the British economist Andrew Oswald, found a strong relationship between increases in homeownership and increases in the unemployment rate; a ten-per-cent increase in homeownership correlated with a two-per-cent increase in unemployment.

The reason is that home ownership reduces the mobility of labour (by the way, that's a 2% increase in unemployment, not 2% increase in the unemployment rate, say, from 3% unemployed to 5% unemployed). The process of having to sell a home and then buy a new one is sufficiently costly and time consuming that it acts as a form of constipation upon the free flowing of labour to where it is desired.

The answer to this is that there needs to be a thriving rental sector so that people can indeed move to where the work is.

There's three points we can make about the UK market here: buy to let has increased the private rental sector so we might conclude that it has shaved some (even is a small) amount off the unemployment rate.

Social housing is actually even more difficult to get into than the purchase of a home is. So we can also reasonably assume that it acts to increase the unemployment rate.

Finally, stamp duty acts to increase the cost of moving house, thus creating even more such constipation in the movement of labour and thus, we must assume, increasing the unemployment rate.

Interesting how raising a tax can raise the number of people who require tax funded benefits, isn't it?