Higher Homeownership Poses Risk to Employment: Cutting Research

With greater homeownership may come greater unemployment.

As more people own their own homes, they gradually interfere with efficient functioning of labor markets, leading to higher levels of joblessness, economists David Blanchflower and Andrew Oswald wrote in a policy paper published in October by Chatham House and the Centre for Competitive Advantage in the Global Economy at the University of Warwick, U.K.

Western governments have intervened in housing markets through subsidies, guarantees or tax allowances, and touted the resulting higher level of homeownership as a “creditable achievement” of their administrations, they said.

The result: Residential property owners may try to hold back development in their areas through zoning restrictions that would curb job creation and business ventures, while those who have homes and are out of work may be reluctant to move to seek employment, the authors wrote. A 1 percent increase in homeownership is estimated to lead to a 2.2 percent gain in unemployment over the long term, they said.

“What is the price paid by society for the widening of home ownership?” the economists wrote. “The research suggests that policies have led to an unknowing impairment of the markets for labor and enterprise. The evidence is that high home ownership weakens the vitality of the labor market and slowly grinds out greater rates of joblessness.”

Governments should encourage more rentals instead of providing financial incentives to those buying homes, Blanchflower and Oswald said.

“High levels of home ownership do not destroy jobs in the short term; they tend to do so, according to our estimates, a number of years later,” Blanchflower and Oswald wrote. “Unless these long linkages are properly understood by politicians and other policy-makers, the deleterious consequences of high levels of home ownership cannot be appreciated.”

Home-owning may not be a great investment right now anyway: With about $1.45 trillion of mortgage bonds on its balance sheet, the Federal Reserve’s plan to taper debt purchases doesn’t augur well for the U.S. housing market, says David Carbon, an economist at DBS Group Holdings Ltd. in Singapore.

Given the average U.S. home price of $180,000, the Fed has purchased the equivalent of 8.1 million units since 2008, about 6.2 percent of the entire U.S. housing stock, Carbon wrote in an Oct. 28 note.

“The Fed has been clear about its intent to support housing,” he said. “And it seems to be doing a pretty good job of it” with housing starts and home prices rising.

The danger is that the Fed may have had “too much” to do with the rebound. It remains to be seen if new home sales and prices, as well as housing starts, can maintain gains if the central bank stops its mortgage bond purchases.

“Take away the buyer and chances are the other things disappear too,” Carbon said. “At least that’s the risk. It’s not rocket science forecasting. It’s Economics 101.”


China’s slower economic growth should be welcomed because it reflects efforts to create a more stable expansion that will sustain domestic and global demand over the long term.

That’s the conclusion of Steven Barnett, Division Chief in the Asia and Pacific Department of the International Monetary Fund. He wrote in an Oct. 29 blog posting on the Washington-based lender’s website that the world’s second-largest economy may become more vulnerable because imbalances such as investment now account for almost half of output, one of the highest shares in the world.

Growth may slow to an average of 6 percent a year through 2030 from the 10 percent rate over the last 30 years as the stimulus of investment is curbed in favor of liberalization in banking and service industries, Barnett said. The changes would broaden the benefits of China’s transformation, so that income per person could rise to 40 percent of the U.S. by 2030 instead of 25 percent.

“This would be a fantastic outcome,” he wrote. “China’s success -- which will substantially increase income in China -- will also mean much higher global demand and will thus be hugely important for a robust and healthy global economy.”

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While not all financial crises are the same, the two most recent major regional ones in Asia and Europe may have had more similarities than differences, said Edwin Truman, a senior fellow at the Peterson Institute for International Economics in Washington.

Among what the two meltdowns had in common as they evolved were surprises, denials and delays by policy makers, differing diagnoses, and frequent restarts and recalibrations, wrote Truman in a working paper published in October. He was an assistant U.S. Treasury secretary in the Clinton administration. The “significant differences” were the funds made available to countries, he said.

“The European crises countries received more financial support, despite the fact that their crises involved solvency issues rather than just liquidity issues compared with the Asian crises,” Truman wrote. “The programs adopted in the European crises generally have been less demanding and rigorous than those in the Asian crises.”

While financial crises are inevitable, the degree of future ones can be mitigated if countries are more concerned about their vulnerabilities, Truman said.

“Any student of crises would conclude that there were no real surprises, just amplified variations on the basic theme of excesses that get out of hand, investors who think they can pull out before the crash but end up being victims of the crash, and policymakers in denial,” he wrote. “Policymakers consequently delay taking corrective actions, disagree on diagnoses and, therefore, on short-term and longer-term policy prescriptions with respect to crisis management, crisis prevention, and crisis preparation.”


Transparency in government fiscal reporting will probably increase in the years to come, according to a study by an economist at the IMF.

Timothy Irwin’s report shows how the level of openness about public finances that western governments have been willing to allow has fluctuated throughout history, he wrote. The Netherlands, for instance, shared information on its finances in the 1600s and France did so in the second half of 1700s. Now, with accountability and transparency high up the political agenda, it is expected to rise.

“The fiscal problems of many western European states create pressure for improvements in published budgets, accounts, and fiscal statistics,” Irwin, a member of the IMF’s fiscal affairs department, said in the Oct. 25 working paper. “The ever-falling costs of storing, analyzing, and transmitting information may radically increase the amount of information that governments in Europe and elsewhere make available about their finances.”

Improvements still need to be made, Irwin said. More “plain-language” summaries of public finances should be provided and there are notable gaps in some of the information that governments publish, he said.

“It may be difficult or impossible to find information on, among other things, the values of these governments’ nonfinancial assets, pension liabilities, or derivatives,” he said.

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Want to earn more? Go play outside.

There’s a link between sports participation and earnings, according to an October study by Michael Lechner of the University of St. Gallen and Paul Downward of Loughborough University. The link is biggest for fitness and outdoor sports. Sports participation also correlates with higher employment rates for younger men and higher retirement rates for older men.

“Comparing the different sports against each other reveals that team sports can contribute most to employability, perhaps by signaling teamwork,” the authors said in a paper published by the London-based Centre for Economic Policy Research. There may be “a link between sports participation and the structure of the labor market connected to initial access to employment and then higher income opportunities with aging that are associated with a career ladder.”

There’s variation between genders, and that’s an area for further research, the authors said. Their investigation suggests “the effects of sport on either human, health or social capital that is typically accrued by younger males in their traditional patterns of participation, needs to be compensated for by females later in their working life.”

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