IT mercenaries and buy-to-let landlords are my HEROES - here's why
Rent more because high home ownership means high unemployment
Comment High rates of home ownership increase the unemployment rate, says a new study. This doesn't, at first, sound very sensible; we'd probably think that anyone with a house is working so damned hard to pay the mortgage that they'd have no time to be unemployed.
However, it is actually true that there is a correlation between the two. And it's long been claimed that there's causality there, too: this latest paper by David Blanchflower and Andrew Oswald seems to have it nailed down:
When this is done, we find that the lagged home-ownership rate acts as a strong predictor of the unemployment rate. The size of the estimated effect is startling:
A doubling of home ownership is associated with more than a doubling of the long-run unemployment rate.
No, I'm not an economist either, but this builds on earlier findings which show very much the same thing from different data sources.
Their conclusion is slightly worrying:
For those unaware of it, the previous century saw a huge rise in home ownership across the world. Tax breaks offered by many governments acted to destroy large parts of the early 20th century private rental housing market. If we are right, these kind of tax breaks have worrying consequences.
Leave the detailed economics to the economists for a moment and it's actually you, you peripatetic contractors, who will instinctively understand what the background point is here.
Work and jobs are unequally distributed around the country: and where they're distributed to changes over time. You know very well that you've got to be willing to do one of two things to keep working. Either you continually move the entire family to chase the contracts, or be willing to weekend commute at least some of the time. There might be lots of work around Weymouth, say, as the Land Registry updates something, and then the next job could be anywhere at all.
And if everyone lives in their owned, home, then moving around like that to chase the work is going to be a bit difficult. It does take both time and money to sell and then buy again: certainly more time than it takes to rent a place.
And it's not just tech jobs that are like this: there are whole industries that work in this manner. Certainly there was a time when the Friday afternoon trains from London were full of Northern brickies and chippies going home for the weekend: the work was in London and kipping in a bedsit, or on the site, or even in a squat, was fine during the week but not something for the wife and kids to put up with. [We know one building magnate who spent his first lump of capital on a digger, and slept in the bucket - Ed]
So, the finding that a “high” home ownership rate leads to unemployment is, once explained, something that everyone will be able to grasp. Being stuck with an owned home and the conflicting need to move to work, a good portion of people will simply not move to where the work is. And even if they do it'll take time, and frictional unemployment will be higher.
This is entirely leaving aside the point that, currently, no one from the North can actually afford to buy in the South. You need to have climbed the housing ladder (or come from the lucky sperm club) to be able to afford anything at all in London. The entire sale price of a Northern terrace barely covers the deposit on a London house these days.
Which rather leaves us mystified as to why the politicians keep propping up house prices. There's Chancellor George Osborne's latest ideam which is for the state to guarantee mortgages. This is effectively recreating the US’ Fannie Mae and Freddie Mac on English soil, and encouraging that higher home ownership rate. But it's not just Boy Chancellors who seem to be making this sort of mistake. From the woolly left, Will Hutton (of the Guardian and the Observer) was making the same sorts of demands. Back in June 2008 he said:
We are looking disaster in the face. A British version of Fannie Mae and Freddie Mac must be created now. Legislation to create a Gordon Mac should be introduced before the summer recess. It should be operating by the end of September.
It was slightly unfortunate for Hutton’s brilliant idea that Freddie and Fannie went bust before the end of September 2008, requiring something like $170bn of US Govt money?
What's required is a large and fluid rental sector. Maybe the Labour left has the answer: carpet-bombing the country with “affordable” housing. Sadly, this really means creating local council and housing association housing. And that's an even more illiquid market than the owned-housing one.
I did once press a housing charity lady very hard on the question of how long it took to move from one subsidised house in one local council area to another in another. I had to press hard because I don't think she really wanted to reveal the answer: somewhere between two and five years seemed to be that timespan. So if home ownership increases the unemployment rate by reducing labour mobility, then council housing must do so even more.
As to the tax breaks that they're talking about in the paper: in the US you still get the mortgage interest deduction on your income tax form; something Nigel Lawson did away with over here.
But there's more to it than that as well: we also used to have Schedule A taxation. That was income tax on the imputed value of the rent that you weren't paying by living in a house that you owned. Another way of putting it is that you could have rented your house out, and earned income on it but you didn't; deciding instead to consume that income in the form of having a permanent roof overhead.
That might strike some as excessive, but that rather depends on how terrible you think it is that we have avoidable unemployment.
Which brings us to the really remarkable thing about this study’s finding. High home ownership rates raise the unemployment level: social housing does so even more. Both work by reducing the mobility of labour. The answer is to have a larger private rental sector. Which means, ineluctably, that buy to let landlords are heroes for they reduce unemployment. ®