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    Research: Inflexibility Of Homeownership Hurts The Economy

    A new study examining the relationship between government policies that boost homeownership and the overall labor market offers an interesting look at how more new homeowners can mean fewer available workers.

    Professor Andrew Oswald from the University of Warwick and Professor David Blanchflower from Dartmouth College took a look at unemployment data and homeownership rates in the United States from the year 1900 up to 2010. In examining those numbers alongside more recent unemployment and homeownership numbers, the researchers determined that there is a strong relationship between homeownership and localized economic stagnation.

    “We have been collecting data for decades now and it is appropriate to go public on the results. We find that a high rate of home-ownership slowly decimates the labor market,” Oswald said. “The USA makes a valuable ‘laboratory’ in which to study this issue, because the different states have a language, currency, and culture in common.”

    The researchers found that a high rate of homeownership in a State was almost always followed by higher unemployment rates. A couple of things contribute to the relationship:

    • Homeowners who find themselves unemployed are more likely to resist moving in search of new work, thereby remaining unemployed or opting to take a job close to home where they are underemployed.
    • Lower levels of labor mobility could contribute difficulties businesses face recruiting new employees from other areas if a higher number of people are unwilling to relocate for work because they own homes. The resultant lack of labor talent could lead to business failure and subsequent elimination of whatever jobs the company initially created.

    The States that had the highest change in homeownership (an average of more than 23 percent in Alabama, Georgia, Mississippi, South Carolina and West Virginia) since 1950 had a rise in the unemployment rate of 6.3 percentage points between 1950 and 2010. States with the lowest increase in homeownership over the same period (an average of more than 1 percent in California, North Dakota, Oregon, Washington and Wisconsin) saw a 3.5 percentage rise in unemployment.

    From the study:

    In his 1968 address to the American Economic Association, Milton Friedman famously argued that the natural rate of unemployment can be expected to depend upon the degree of labor mobility in the economy. The functioning of the labor market will thus be shaped not just by long-studied factors such as the generosity of unemployment benefits and the strength of trade unions, but also by the nature, and inherent flexibility and dynamism of, the housing market. However, on that topic there has been relatively little empirical research.

    With tough economic times seemingly unending in the United States, the research challenges the white-picket-fence American dream, as those who are too settled into one area could be contributing to overall economic hardship while their more nomadically inclined peers encourage prosperity.

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