Is Owning Your House Bad for You?

Articles in Slate (which we found via Economist’s View via Marginal Revolution) and the New York Times point out the dark side of home ownership.

Is this merely a needed bout of contrarian thinking, or is this the very early signs of a shift in attitudes towards home ownership? As I will address below, I believe that changes in the US labor market (that is, the lack of stable employment) is changing home ownership from an asset to a millstone. And that shift, played out over time, will erode communities (at least, the face-to-face, physical kind).

The New York Times story, “Mortgage Trouble Clouds Homeownership Dream,” is straightforward, pointing out that the deep cultural value of home ownership, combined with permissive lending, allowed lower-income people to overextend themselves:

Perhaps the American dream of homeownership is not for everyone.

That may sound at odds with a bedrock notion of society promoted by presidents for decades. But many experts say it is a message that can be drawn from the rising troubles with mortgages provided to home buyers with weak credit…

Hundreds of thousands of families who bought houses in the last two years — using loans with low teaser interest rates and no down payments — are now losing them.

Their short tenure as homeowners calls into question whether the nation’s long drive to increase homeownership — pushed by both public policy and financial innovations — has overstepped some boundary of demographic and economic sense…

“I worry that people are overexposed to risk,” said Stuart S. Rosenthal, an economics professor at Syracuse University. “We wouldn’t encourage people to buy risky stocks, so why do we encourage low-income families to invest in this risky asset, especially in tight markets?”

But politicians have long encouraged the idea of homeownership. “A nation of homeowners is unconquerable,” Franklin D. Roosevelt said. Promoting homeownership has been a cornerstone of President Bush’s “ownership society.” He has declared June to be National Homeownership Month….

Homeownership also has a more problematic side: it locks people into an asset and ties them to a place. “Too much homeownership might restrict mobility, and that may not be a good thing,” Professor Gyourko said, or let people make the choice and know that sometimes they will make mistakes.”

The Slate story, “The Renter’s Manifesto,” by Tim Hartford, focuses on how home ownership, and the roots that go with them, are bad for one’s employment prospects:

Why do people still live in Detroit, which has suffered so much for so long? Why not move to Chicago or New York?….

One reason, of course, is that community ties matter. Many people like to stay near where they were born. But many others would like to seek new opportunities—even, dare I say it, new experiences….

But emotional ties are not the only ones that bind us. There are Byzantine restrictions on cross-border migration….

Even when we look only at internal migration, the barriers are formidable. Wherever people seem particularly keen to own their own homes—as in the United Kingdom, Spain, and some U.S. states—employment suffers as a result. English economist Andrew Oswald has shown that across European countries, and across U.S. states, high levels of home ownership are correlated with high levels of unemployment. More conventional factors such as generous welfare benefits or high levels of unionization don’t explain unemployment nearly as well as the tendency to own houses. Renting your home and staying flexible do wonders for your chances of always finding an interesting job to do.

Recent research in the Economic Journal suggests that people who own their own homes form denser local networks, which help unearth local jobs. Still, the jobs tend to be less well-matched and commuting distances are longer. So, professor Oswald is right to argue that we should do everything possible to free up impediments to renting or to selling a house and buying a new one. It would be handy if we were allowed to build houses near Manhattan, too.

Even if we did all this, economists Ed Glaeser and Joe Gyourko argue that one serious barrier remains: Houses do not walk. No matter how bad things get in Detroit or Treorchy, the houses will still be there, and if they are cheap enough, people will want to live in them. The likely result is a gloomy sort of segregation: Those who feel that they can find a good job in the boom cities will move there and pay the higher rents. Those who are less confident of that would rather have no job in a cheap house than no job in an expensive house. Detroit will have residents for a long time to come.

It’s an interesting thesis, and likely some truth in it too, but there is one huge hole: the data isn’t adjusted for age. Older people are more likely to own homes. And unemployed people over 40 (in some fields, over 35) find it much harder to find a job. It’s age discrimination, in part, but also the reality that most organizations are pyramid shaped. There are more jobs at the bottom and the middle. Employers don’t like hiring people who are overqualified (the subordinate might know more than the boss, or might get bored and quit). And for corporate and professional roles, employers also vastly prefer poaching someone from another company to hiring someone who is out of work, even through no fault of their own.

But the demands of the workplace are at odds with home ownership and rootedness. I know of someone over 40 who did lose his job. His old employer was in Boston. His new employer is in exurban Philadelphia. He doesn’t want to take his kids out of school, so he has a brutal commute. How many people are willing to do that?

The demands of labor mobility are increasingly in conflict with community life of any form. A McKinsey partner requisitioned a study by Yankelovich about 8 years ago, which reported (among other things) that college graduates would work for 11 employers before they retired. More recently, the Bureau of Labor Statistics predicts that current college graduates will have 13 jobs by the time they are 38 (note it is not clear whether this includes promotions). That kind of instability makes home ownership a risky move. It’s not just the possible need to relocate, but the uncertainty over income that would get in the way.

I don’t want to live in a society that is that ungrounded (I grew up moving frequently, so I know how disruptive and unhealthy it is) but it looks like we won’t have much choice in that matter.

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