Does Homeownership Kill Jobs? Probably!
Via Shane Ferro, economists Andrew Oswald and David Blanchflower “found that rates of high homeownership lead to higher rates of unemployment in both the United States and Europe.” Oswald and Blanchflower attribute this to matching effects – that is, when you’re tied down by a house you’re less likely to move to find a job that would better fit your skills. It also makes it harder for firms to find appropriate talent, and leads to people wasting too much of their time on unproductive commuting. While I completely believe their result, I have to wonder if they are focused on the right matching effect in employment.
Here’s the telling finding, in my view:
High rates of homeownership lead to fewer businesses being formed, says Blanchflower. The authors aren’t fully able to explain this correlation, though they hypothesize in the paper that it could be a result of zoning restrictions in residential areas and/or a NIMBY (not in my backyard) attitude from homeowners.
I think this detail suggests that the debt load associated with homeownership is the most likely vector in labor market weakness, not the geographical fixing. Anecdotally, probably all of us have a friend or coworker who immediately became far more conservative in their careers once they signed a mortgage. Buying a house means leveraging yourself up, and it basically means you no longer have the option to sacrifice a little cashflow now for a better job fit or better long-term opportunities.
A debt load explanation does a much better job than NIMBYism of explaining the lower rate of business formation. The debt resulting from homeownership makes entrepreneurship less attractive at the margin, because you are sacrificing cashflow you would need to service the debt. Debt from homeownership also directly impacts entrepreneurship via the financing mechanism – existing mortgage debt makes it harder to get a loan. For example, in the US SBA 504 loans require backing of the “personal, non-retirement, unencumbered liquid assets of the guarantors/principals“. The US uses housing subsidies as a way to encourage leveraged forced savings…but that locks up personal wealth that could otherwise be deployed to start a business, and furthermore heightens the risk in doing so.
One interesting followup that could shed light on whether the debt load or geographic fixing is responsible for lower entrepreneurship and thinner labor markets: look at Florida! Florida (and probably other states) has a “homestead law” that protects the primary domicile in bankruptcy. So if debt is the primary reason for this thinner labor market, homeownership should have a smaller impact on entrepreneurship in Florida than it does in other US states. Since the house is protected in bankruptcy, that lowers the debt-related risk to starting a business. On the other hand, if effects like geographic fixing and NIMBYism are the reason for the thinner labor market, Florida should look broadly similar to other US states in the homeownership-vs.-labor-market relationship.