Lipow on the Relationship Between Home Ownership and Unemployment

Back in July, I did two posts (here and here) on Public Policy for Progressives by my friend and former colleague Jonathan Lipow.

Occasionally I’ll hit highlights from the later parts of the book. This one caught my attention.

It turns out that countries with high rates of home ownership suffer from serious social pathologies. And of these, the most important is that high rates of home ownership are associated with high rates of unemployment.

Lipow gives the credit for this discovery to British economist Andrew Oswald. The idea is that the right job for you might be somewhere far from where you live. If you lose or quit your job and you’re a renter, it’s relatively easy to give notice to your landlord and move to that new job. However, if you’re an owner, the transaction costs are much higher. Most people won’t have the spare wealth to simply rent out the house or condo and then move; they’ll need to sell, and anyone who has sold a house can tell you how lumpy a transaction that typically is: high realtors’ fees, waiting for the right buyer, etc. So you’ll look longer for a new job and might find a job that’s inferior to the one you could have moved to.

Why is this a problem? Won’t people take account of this in their decision to own or rent. Yes. But Jonathan’s point is that the government puts its finger on the scales by subsiding home ownership.

So Jonathan advocates having the government shift away from promoting and subsidizing home ownership. I agree. He advocates going further by building millions of units of student housing, making available millions of rental properties now being rented by students. I wouldn’t do that. I was disappointed that Jonathan didn’t simply advocate deregulating the supply of housing, as former co-blogger Bryan Caplan has done in Build, Baby, Build. But maybe that’s one of many reasons that I’m not a progressive.

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