There Goes the Neighborhood: Why Homeownership Drags Down Employment

If your idea of the American dream is to spend your mornings and evenings alone in an idling car surrounded on all sides by other lonely people in other idling cars, by all means, buy a house.

Congratulations! You just reduced your own employability, and that of your neighbors, too. Photo: ##http://circlemortgage.com/?page_id=36##Circle Mortgage##

A new paper [PDF] from the Peterson Institute for International Economics finds a strong link between homeownership and unemployment — not necessarily for the homeowners themselves, but for the area where they live. In fact, a doubling of homeownership rates for a state is correlated with a more-than-doubling of the unemployment rate about five years down the road.

Another way to put this is that homeownership renders employees immobile, so their commutes stretch longer and longer as they look for work until they reach the breaking point.

“The cost of travelling to work should act as an impediment to the rate of employment (because it raises the opportunity cost of a job),” wrote Dartmouth professor David Blanchflower and University of Warwick professor Andrew Oswald. They note their finding that high homeownership is associated with longer commuting times “is consistent with the idea that moving for an owner-occupier is expensive, and that in consequence the places with high home-ownership will see more workers staying put physically but working further from their family home.”

When there are no jobs available within a reasonable commute, people can choose between an unreasonable commute — and many people do — or no job at all. The option of moving closer to work is less appetizing for homeowners than renters, especially since so many people are still under water on their mortgages. A more flexible labor force — one made up of renters — can move to where the jobs are.

The flip side of the high homeownership coin is that if rental housing is in short supply, people interested in nearby jobs might not be able to move to the area.

The researchers also found that fewer businesses establish themselves in areas with high home-ownership, possibly because of what they call “NIMBY pressures in action.” Zoning for residential-only and other attempts to curb development prevent businesses from creating jobs near where people live. That’s a big endorsement for mixed-use development, where people can work, shop, and live all in relatively close proximity.

The state level data Blanchflower and Oswald examine might be a somewhat blunt instrument for investigating the relationship between homeownership and unemployment — one would think that a more local sample size could tease out these nuances. But their findings are compelling. They say the five-year time lag between the rise in homeownership and the rise in unemployment might explain why the link is so little understood. They went through decades of data and say their finding “does not depend on” data from the housing crash and ensuing recession.

Meanwhile, Blanchflower and Oswald say that states with higher rates of homeownership have longer commute times probably because of “the greater transport congestion that goes with a less mobile workforce” — and that this in turn will “raise costs for employers and employees.”

So more people driving longer to work — possibly bound by their mortgage to log many miles a day to a distant job — makes your drive longer too, whether or not you have a mortgage, because there’s more traffic. That means that a commute of the same length takes longer, making your job-seeking radius smaller if you’re still hoping for a “reasonable” commute.

“Because roads, in particular, are semi-public goods in which individuals can create congestion problems for others, this pattern in the data is consistent with the existence of un-priced externalities,” the authors write. The externality they’re talking about — congestion — is just one of many unsavory consequences of driving that aren’t covered by the price of gas.

If gas prices were high enough to pay for the air pollution, health problems, foreign wars, and, of course, road construction caused by driving, imagine how short commutes would have to be for people to put up with them. People would either reject even more jobs further from home — potentially causing even more unemployment — or transportation options would need to radically improve, job sprawl would need to reverse, and urban design and settlement patterns would need to become far more dense and practical. Those could be preferable options to widespread joblessness.

  • Anonymous

    It makes sense that the sunk costs of having a mortgage would make labor less mobile, even if people are not underwater on their mortgages, because if you don’t stay in your house for at least a few years you are losing money, if not in absolute terms then at least relative to renting.

    Note, however, that this issue is largely irrelevant to the things that most people on Streetsblog care about. The immobility of labor due to high home ownership rates in sprawlsville could be rectified by having SFRs in the burbs operated as rental properties – something that the powers that be are trying to encourage.

    On the other side of the coin, it’s possible to imagine a walkable, bikeable, mixed-use neighborhood with high apartment/condo/coop ownership rates that would be susceptible to the same problem. We have a suite of federal and state policies that encourage SFR ownership in sprawlsville and discourage ownership in denser areas, but it doesn’t have to be that way.

    The result of the study do provide even more evidence that we should reexamine our policies that encourage ownership and discourage renting, but that’s about it.

  • True Freedom

    This is not an argument for mixed use development.. because often mixed use development includes condos, which are owner occupied. You have the same problem with an immobile workforce.

    This is why I don’t think mixed use is really the panacea to the commute problem. The thought with mixed use is that people will live close to their job. Well, today, the average tenure at a job is somewhere around five years. After this time, if you’re next job is not near your house (or mixed use condo), you’re right back to a long commute if you’re owner-occupied. If you’re a renter, it’s easier to pack your bags and move.

  • True Freedom

    I should have read your reply first!

  • Irla Loudermilk

    Sounds like they’re trying to justify higher taxes on gasoline. Why don’t we go ahead and improve the transportation problem,
    instead of getting more and more studies on why something like this.
    People enjoy living in the suburbs, where there is not much
    overcrowding, that’s why they move there. And they enjoy owning their
    own property, and not having to be susceptible to the whims of a landlord. So, to make them all become renters is not really what most people want.

  • Joe R.

    The thing is you can’t really “improve the transportation problem” when people are spread out on 1/2 acre lots. Infrastructure per capita in such areas costs more than in denser areas. Most suburban residents may want the suburban lifestyle, but they’re unwilling and/or unable to pay its true cost. End result is in aggregate urban areas end up subsidizing their suburbs. There really is no viable solution here to solve the problems of suburbia which is fair to all parties. The hard fact is suburban living uses vast amounts of energy and other resources. We no longer have cheap energy. Also, we have limited farmland. In fact, it’s looking like the amount of viable farmland will decrease thanks to climate change. As a result, we can’t afford to waste land which could grow crops for tract housing, malls, highways, or parking lots in the suburbs.

    You can still have your own property in the city. There are condos, coops, and single/multi family homes (on much smaller lots than in the suburbs, of course). Realistically, unless you’re growing most of your own food, you don’t need a large plot of land. I really have no objection to anyone wanting a lifestyle like that if they’re willing to pay the true costs. The end result of this however is the suburbs will largely return to what they were a century ago-havens for the wealthy.

  • Erik Cabral

    That’s a REALLY GOOD POINT! I’d go on to argue the cultural damage due to the lack of community building that comes with such regular turnover too.

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