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.
READER COMMENTS
Craig
Sep 13 2024 at 7:06pm
“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.”
Might I suggest another reason? Perhaps in many jurisdictions it is less time consuming to evict a non-paying unemployed tenant than it is for a bank to foreclose on a non-paying unemployed home owner?
Matthias
Sep 14 2024 at 2:05am
Assuming that this is true, how does it give you the observed relation mentioned in the article?
Btw, Singapore has both very high home ownership rates and pretty low unemployment. So the correlation is certainly not tight.
Craig
Sep 14 2024 at 8:02am
First off I’d say I’d likely rather be a homeowner than a tenant 3 months into a one year lease. Depends on the landlord, indeed some landlords might be understanding of needing to move because of unemployment because it obviously impacts ability to pay rent. However, on the flip side pleading unemployment would then be an automatic out so why bother with a lease at all?
I think it works because the home ownership itself isn’t causing the unemployment, its materially reducing labor mobility. This might not be applicable within Singapore because of its size. Unemployment in US also currently on the lower end, but I’d suggest he means that its statistically higher in homeowners than renters.
The shorter eviction process definitely pulls unemployed tenants out of the pool of tenants much quicker even if it means living out of your car in a Walmart parking lot [not making fun either that IS happening].
steve
Sep 14 2024 at 10:26pm
Singapore is smaller than NYC and has a very good public transport system. Changing jobs doesn’t necessarily mean you need to move, unlike moving from NYC to Iowa. Also, something like 80% of Singapore’s public housing is public housing. I believe the public housing unit finances the mortgages at low rates and the government picks up losses. Also, what you are buying is a 99 year lease. Singapore is so much different than the rest of the world I would hesitate to use it as a basis of comparison for most things.
https://www.abc.net.au/news/2024-08-18/singapore-homeownership-sock-yong-phang-henry-george/104237980
Steve
Robert Simmons
Sep 14 2024 at 5:13pm
Are there policies that are propping up the high transaction costs, that we can change?