Homeownership leads to longer unemployment?

http://economix.blogs.nytimes.com/2011/08/05/length-of-unemployment-continues-to-break-records/ says that the average length of unemployment is the longest ever recorded, up to more than 40 weeks (compared to less than 15 weeks in the downturn of the late 1940s). According to http://www.census.gov/hhes/www/housing/census/historic/ownrate.html , home ownership rates have been growing gradually since 195o, as has the duration of unemployment.

Let’s look at a couple of reasons that increased homeownership could lengthen unemployment periods. Let’s consider mobility. There is a large variation in demand for labor across states and regions. Homeowners are crippled in terms of mobility compared to renters. The homeowner, especially in a state with a shrinking number of jobs, may need months or years to sell a house and move. He may delay the move for months in hopes of landing a local job that will spare him the pain of paying a 6 percent real estate commission. A renter can pack up, tow a U-Haul, and be on the other side of the country within a month.

A renter may feel more urgency about earning enough money to make monthly payments. A landlord can get a non-paying tenant evicted, in most states, in a matter of weeks. Now that the mortgage industry has combined 21st Century financial engineering with 19th Century methods of handling paperwork, and therefore nobody can say who owns anything (we’ve turned the U.S. into the kind of informal economy that we once derided), it might take years to foreclose on a homeowner after he or she stops making payments.

So it may be that the more we encourage homeownership the more we engender long-term unemployment. Perhaps therefore the trillions of dollars that we’ve poured into subsidizing homeownership (mortgage interest deduction, propping up Fannie Mae, etc.) were ill-considered. In a fast-growing global economy, maybe a big competitive advantage for a nation is a mobile workforce of renters.

22 thoughts on “Homeownership leads to longer unemployment?

  1. Agree completely, Philip. Home-ownership subsidies have caused so much damage even beyond this financial crisis of ours.

    The logic behind them was always weak; correlations with conscientious behavior where causation obviously runs the other direction (ie conscientious people buy homes, not homes make you conscientious).

    So a waste as public policy and, as you say, a barrier to efficient allocation of labor.

    However flimsy, I think the policy rationale for subsidies was always no more than cover for a pipeline of political favors to banker friends with the side-bonus of buying low-income votes.

    Disgraceful, but then what isn’t in politics 🙂

  2. Yes, at a certain point, we have too much home ownership, and we’re probably past that. I know people being held back by pending real estate deals.

    The US has an amazingly mobile work force. It’s easier to move to an entirely new state than it is to move within most individual European countries.

    There’s nothing wrong with renting. Yes, it has risks, but so does home-owning.

  3. How strong is the correlation? (Have you plotted the two against one another on a graph? I’d be curious to see what that looks like.) And what evidence is there that the correlation is causal? We can certainly imagine reasons why home ownership might increase the duration of unemployment, but how do we know that we’re not just spinning a just-so story?

  4. The former prime minister of Singapore always mentions the HDB program when reflecting on why his country has been so successful. He says that homeownership gives people an interest in the fate of the country and makes them better citizens. An island nation wouldn’t have any problems with an immobile workforce but there are still many intangible benefits to high levels of homeownership. I for one am very glad that a lot of people from California, who otherwise would have moved, are stuck with the mess they’ve made and can’t come to my part of the country where things are relatively better economically.

  5. Interesting observation…just one thing: Germany for instance has a lot more renters vs homeowners and workers are still less mobile than Americans. there might also be other factors involved.

  6. Two moves are supposed to equal one fire. I’d think this is all the more true for homeowners, who tend to be more rooted in their communities.

  7. Phil, two questions. First, do you own your home? If so, why? Realize that whatever answer you give (“my wife wants the kids to have a backyard to play in,” etc.) is likely to apply to many other people. Second, compare your own behavior as a renter to your behavior as a homeowner. As a renter, if there’s trash in the street in front of your domicile, do you pick it up? Or is it the landlord’s problem? (And if it’s the landlord’s problem, why should they care? They’re probably just good capitalists, trying to maximize their investment.) I think an argument can be made that homeowners make better citizens. Also, there’s more to life than economics.

  8. Frank: I am a homeowner. Why? Apparently I like telling people “I am stupid and could have obtained housing for 1/3rd the cost” (a house in our upscale suburb rents for about the same price as property tax, maintenance, and landscaping (i.e., the landlord gives the tenant the house and land for free)). I do take care of the place much more obsessively than if I rented. I pull invasive weeds. I clean up trash. I think about what it will be like in 10 years. Maybe that makes me a better citizen, but it certainly makes me a worse worker. Instead of working (and incurring tax liability) I am out watering trees or pulling weeds. Instead of saying “the interior is doomed to get shabby and eventually the landlord will have to repaint/fix up”, I spend time making sure everything inside the house works well and looks good.

    If I had an underwater mortgage, like a lot of Americans do, and was looking towards the day when the bank would repossess the place, I’m not sure that I would worry too much about maintenance.

    So true homeownership does enslave people to their houses and neighborhoods to some extent. But did the fake homeownership that we pushed in the 1990s and 2000s?

  9. I expect that there are other factors thrown in there too. I expect that the mean homeowner age is higher than the mean renter age. Those older people are more likely to be married and have kids. People want stability for their kids. Try moving a teenager out of state and pulling them out of high school and putting them in a new one. The married two career couple has, by definition, two careers to look out for. One person losing their job and not finding one quickly doesn’t mean the other one should quit their job and move too – then you just have another person looking for a new job. The older folks are more likely to have have parents that need their help and moving away is difficult. These are all big factors that keep people in the same area, even though job hunting might be easier elsewhere. I think renters can move more easily, but it is likely tied to the phase of life they are in and not just the fact that they are renters.

  10. So what do you do later in life when you own nothing…keep working to pay the rent on your shabby apartment? Will you have satisfaction and fulfillment when you realize you chased thankless jobs all over the country. You can find a crappy job anywhere if you really want to work. I don’t have to move from one coast to the other just to do the bidding of some mid-level manager for a company that will outsource my job to China or Sri Lanka the first opportunity they get.

  11. @philg: What “enslaved [families] to their houses and neighborhoods” is not necessarily home ownership per see, it is when 2 family members — husband and wife — started joining the workforce. If only 1 had a job, and his/her job got cut, the family had a far easier decision to make for a move. In short, life used to be simpler, when families lived a simple life with no TV in each room, and 2 SUVs in the garage. Life used to be about making it, not outdoing the Jones next door.

  12. Phil,
    I agree with your premise of ludicrous over-subsidizing of homeownership to the exclusion of sense. However, make CERTAIN you understand this comment posted in response to your article at BI:

    “Sure… its easier with slaves… on Aug 6, 8:43 AM said:
    … who don’t belong to families, communities and can be transported any time anywhere to serve best the interest of employers. Then you don’t need to build infrastructure associated with communities, either. Think of all the savings we could have.”

    Which enslavement do you prefer exactly? You seem to like the kind where we are herded about the country to serve your needs. To that I say, HELL NO! Personally, I will fight TO THE DEATH before leaving my community.

  13. @jim: “You can find a crappy job anywhere if you really want to work. I don’t have to move from one coast … for a company that will outsource my job to China or Sri Lanka the first opportunity they get.”

    People moved to the U.S. to find jobs, even a crappy job, and before that, our ancestors constantly moved over the continent to find food. There is nothing wrong with a move, even for a company that outsources to China because all that it’s trying to do is, survive itself from our government regulations. The issue is, our government has gotten too involved in our everyday life to the point that we scream “Uncle $am” anytime we fall down vs. getting up and moving on.

    To put it another way, a very, very, small % of society will need constant help, for life, from our government (handicap, criminals, etc). Everyone else will need period short term help (unexpected disaster, economic hardship, etc.). Sadly, Uncle Sam is treating everyone as a handicap and lumping all of us under its “wings” which is why we are becoming a society of dependent on government [1]. What’s more, do you want a free cell-phone? Sure: http://www.masslegalhelp.org/income-benefits/cellphone Now tell me, why would a low income person / family *needs* a free cell-phone (remember, they already have cable TV and more)? What need such a person has today for a cell-phone that 10+ years ago did just fine without one? How will a free-cell phone get this person out of his poverty?!

    [1] http://blogs.wsj.com/economics/2011/05/03/about-1-in-7-americans-receive-food-stamps/

  14. While renting does carry with it more mobility than home ownership, not all renters can just “pack up, tow a U-Haul, and be on the other side of the country within a month.”

    A family that rents has other anchors tying them to the community: friends; family; Church, perhaps; their childrens’ schools and friends; and so on. This will be even more pronounced as home ownership decreases.

  15. Phil, you’re starting to sound like Thoreau. Here’s what he wrote in “Economy” in WALDEN:
    “I see young men, my townsmen, whose misfortune it is to have inherited farms, houses, barns, cattle, and farming tools; for these are more easily acquired than got rid of. Better if they had been born in the open pasture and suckled by a wolf, that they might have seen with clearer eyes what field they were called to labor in. Who made them serfs of the soil? Why should they eat their sixty acres, when man is condemned to eat only his peck of dirt? Why should they begin digging their graves as soon as they are born? They have got to live a man’s life, pushing all these things before them, and get on as well as they can. How many a poor immortal soul have I met well-nigh crushed and smothered under its load, creeping down the road of life, pushing before it a barn seventy-five feet by forty, its Augean stables never cleansed, and one hundred acres of land, tillage, mowing, pasture, and woodlot! The portionless, who struggle with no such unnecessary inherited encumbrances, find it labor enough to subdue and cultivate a few cubic feet of flesh.”

  16. Jim’s “shabby apartment” comment is a peculiarly American view: that owner-occupied housing has to be intrinsically nicer than rented housing. In principle, there’s no reason that rentals have to be apartments and owner housing has to be detached houses: one of the odd results of subsidized home ownership is that the market for long-term rentals of “nice” detached houses is minuscule. But it doesn’t have to be that way. And there’s some sign it’s changing: http://www.pe.com/business/realestate/stories/PE_News_Local_D_rentals03.3a0741f.html

  17. The biggest jump in home ownership was from 1950 to 1960 (6.9 percentage points). Since then it’s barely moved: 2.3 percentage points from 1960 to 1990, while the jump in long-term unemployment is much more recent. Moreover, overall home ownership barely moved from 1980 to 1990 while ownership for people aged 65 and over jumped 5.1 points, meaning that home ownership for the working-age population actually went down in the 1980s. Unfortunately, there’s no data for 2000 and 2010 to see whether this trend was confirmed.

    A comparison with the unemployment map at http://blogs.wsj.com/economics/2011/07/21/long-term-unemployment-by-state/tab/interactive/ brings up some interesting facts:
    -DC only had a 38.9% home ownership rate in 1990, yet has a 32.3% long-term unemployment in 2010, well over the 25.6% average
    -California had a 55.6% home ownership rate in 1990 (8.6 points below average), yet has a 31.7% 2010 long-term unemployment (6.1 points above average)
    -Nevada had a 54.8% home ownership rate in 1990 (ten points below average), yet has a 29.3% 2010 long-term unemployment (3.7 points above average)
    Massachusetts (59.3%, 29.9%) and New York (52.2%, 27.7%) are similar cases, with lower than average home ownership yet higher than average long-term unemployment.

    In this light, I find it hard to establish a stong causality between home ownership and long-term unemployment, even if there are theoretical reasons why home ownership could restrict your mobility. There’s probably a lot of other reasons that prevent mobility, such as the spouse/partner’s job situation (as George pointed out above) or the quality of local schools. Besides, being a renter isn’t paradise: you can still have to sign a one-year lease when you move into a new area. If you are laid off before the year is over (it’s common for companies to lay off their most recent recruits first in a bad economy) you are still liable for the remaining of the lease, which is tough if there’s no other job in the area.

    The real question is whether mobility really is an issue in the current economic climate. After all, unemployment is bad everywhere with the notable exception of North Dakota (3.9%), a sparsely populated state that certainly couldn’t cope with a massive influx of Californians, Nevadans or New Yorkers.

  18. Folks: I’m not sure how slavery or Thoreau is relevant. The current economy is more mobile than was the 19th Century economy. We have telecommunications and the Airbus A380; they didn’t. The modern house is much larger and more complex than a 17th-19th Century house and therefore more amenable to professional management (e.g., by a landlord). Furniture is much cheaper to produce, in relative terms. There has never been a better time to be a renter of a furnished dwelling. Thoreau didn’t have to worry about whether he’d be offered a great job in Singapore or Concord, California and want to pick up and move while still maintaining his relationships back in Concord, Massachusetts via periodic Skype sessions and jet airplane trips home.

  19. It’s communist ideal to ‘free’ the working class from private property, nationality, religion, family and let them focus on labour which is considered the essence of the human existance.

  20. chip_mk: I don’t think it is communist to suggest that people might be better off renting in a country where the transaction cost of selling a house is equal to approximately 10 percent of its value (6 percent real estate commission plus maybe 4 percent to leave it on the market for the average number of months). Is a person who owns a car outright somehow better off than a person who leases a car? Is the person who owns a car and is responsible for maintaining it and renting or buying a parking space for it a capitalist success story while the person who is a customer of Zipcar is a neo-serf under communism? Ownership and private property can be considered useful organizing principles for a society without saying that homeownership should be elevated above all other potential possessions.

    A home (including the land) is different from most things that a person might own. It is time-consuming to maintain, impossible to move, extremely costly to sell, illiquid, etc. So why push people so hard to buy houses?

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