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Quelle Surprise! Home Ownership Restricts Mobility, Particularly If You Can’t Sell

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Louis Uchitelle, in “Unsold Homes Tie Down Would-Be Transplants,” points out that being unable to sell a house can keep people from taking jobs that require them to move. That problem is obviously now more acute given the moribund state of the housing market in many parts of the county. However, Uchitelle implies that the negative-labor-market impact of home ownership is strictly the result of a lousy real estate market.

That isn’t accurate. As we pointed a year ago in “Is Owning Your House Bad for You?” we took as a point of departure an article by Tim Harford in Slate:

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.

My comments:

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 if 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.
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Yet Uchitelle fails to acknowledge that home ownership has been discussed in the economic literature and found to inhibit labor mobility even in good times. Guess we can’t question that American dream.

From the New York Times:

The rapid decline in housing prices is distorting the normal workings of the American labor market. Mobility opens up job opportunities, allowing workers to go where they are most needed. When housing is not an obstacle, more than five million men and women, nearly 4 percent of the nation’s work force, move annually from one place to another — to a new job after a layoff, or to higher-paying work, or to the next rung in a career, often the goal of a corporate transfer. Or people seek, as in Dr. Morgan’s case, an escape from harsh northern winters.

Now that mobility is increasingly restricted. Unable to sell their homes easily and move on, tens of thousands of people … are making the labor force less flexible just as a weakening economy puts pressure on workers to move to wherever companies are still hiring….

With homes changing hands easily in a booming market, interstate migration reached 2.2 million people in 2006, excluding the effects of Hurricane Katrina. As the economy and home prices began to unravel in 2007, however, interstate migration plunged to 1.6 million people….Worker mobility — or rather immobility — is making a big contribution to this decline….

Corporate transfers contribute significantly to worker mobility, and employers often cover at least some of the cost of selling a home in the old location and buying one in the new. That practice can backfire, says Richard Shaw, a vice president of Applied Industrial Technologies….

Out of 3,500 employees in the United States, Applied normally transfers 25 to 30 each year from one center to another… Despite the opportunity, transfers have fallen by half, Mr. Shaw said. That is mainly because transferred employees too often find themselves owning two homes — one in the old location and one in the new — and paying two mortgages.

Applied tries to minimize the problem by paying one of the two mortgages for up to six months, the expectation being that the old home will sell by then. Increasingly, that does not happen…

He tells of one transferred executive “who ended up owning two homes for more than six months and, finding himself paying two mortgages, opted to move back to his original city, surrendering his new house to the bank.”

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7 comments

  1. Lord

    Economists greatly underestimate the costs of moving and greatly overestimate the benefits. This is probably because the costs fall on the individual while the benefits fall on business. I see little reason moving should be encouraged, and much to be discouraged.

  2. Anonymous

    The Oswald results were for Europe. I’ve seen at least one paper for Australia where the effect didn’t work. (I haven’t got it here but I think it was by Gavin Wood.)
    I don’t know if anyone has tried to replicate it for the US but my sense is that the Oswald effect hasn’t been completely accepted by the researchers in labor economics.

  3. Yves Smith

    Anon of 1:45 AM,

    Australia is a funny case, in that its population in housing-mad (homeownership rates well over 70%) and people hate to move. Even by European standards, very high attachment to community and family.

    Plus very high concentration in a few cities large that are parochial (relative to each other; Australians are huge international travelers). People in Melbourne look very dimly on Sydneysiders (less so the reverse). If you are in Sydney or Melbourne, you’d have to be in pretty desperate straits if you needed to look for a job further afield. Perth is so isolated that that produces much the same effect. So I’m not sure you can generalize from Australia….

  4. Francois

    The best way to get ahead professionally is to avoid marriage and kids, rent for a lifetime, and renounce any idea of a community and personal life.

    Very attractive prospect indeed, particularly well-suited for human nature.

    Sheesh!

  5. Charles Butler

    Drawing some sort of parallel between Spain and the U.S. with regards to home ownership and labour mobility is completely foolish. Were it the case, the entire points-based system of gegraphically allocating posts within the Spanish civil service would fail to function – or home ownership rates among civil servants would be below the norm for the country. Neither is the case. The choicest of jobs demand, as part of the deal, mobility on the part of the employee.

    The other reality is that there is no serious lack of labour mobility in the lower links of food chain here. The inflexibility most certainly is on the part of the more well-paid sectors where people may not be willing to up roots once they have reached a certain level of stable economic well-being. That would reflect an entirely different attitude towards whether the future can, in generic terms, be expected to qualitatively better than the present. None of the above, by the way, takes into account that in cases where homeowners do move in response to economic opportunity they are as, likely as not, not to sell their original residence and buy a second in the new place. The store of value that property is seen as being would result in higher rates of home ownership.

    Of course, there is no question that mobility benefits industry as it permits it to make purely number-generated decisions when deciding to tear down and rebuild in Michigan or start from scratch in the sun belt. Whether this results in more Chevrolets being built is another matter, but it sure turned the rust belt-sun belt competition into a zero sum game.

  6. Russ DoGG

    Has anyone noticed that the orgs most dependent on relocating new employees are the ones that have developed bad reputations locally? The parties involved don’t have equal information resources- and sometimes the employers are looking to exploit that advantage.

    Lord/ Francois:

    WEll said! Idiot economists always overlook the costs to the individual but gloat over the benefits to their precious businesses.

    I must admit I tried moving for a new job and found it was not at all to my liking- but at least I had the common sense to rent instead of buying a house at the new location. Oh yeah- the new job wasn’t as advertised (employers do sometimes lie). Only the paycheck was as advertised.

    Enourmous costs to me (moving and a cheap sale of a house) and a measly 3 grand movers bill to employer. Not to mention the social costs to me. No social costs to the employer..

    Economists always seem to miss the costs to individuals…

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