
Economists: Home ownership leads to unemployment - soundsop
http://blogs.law.harvard.edu/philg/2013/06/04/economists-homeownership-leads-to-unemployment/
======
nhashem
As a resident of Los Angeles, this seems anecdotally (which has the usual
caveats) obvious to me. I saw home ownership lead to issues with employment
_within the Los Angeles metropolitan area._

There is a lot of "affordable" ($400K to $600K) single family homes in the San
Fernando Valley, or towards Orange County, so I had a lot of coworkers buy
homes in those areas. If you work in Venice, a house in Torrance is about a 45
minute commute by car. I know this will sound absurd to a lot of people in HN,
but if you told a Los Angelan your commute to work was 45 minutes each way,
they would say "that's pretty good."

However, if you bought a home in Torrance and live there and a company in
downtown LA wants to hire you, even though you're only driving about another 8
miles or so, your commute will probably explode close to an hour and a half,
and at least one day a week there'll be some clsuterfuck of an accident on one
of the freeways, and you'll have the lovely experience of leaving your house
at 8:00am and somehow still being late to your 10:00am stand-up meeting. Fun
times!

So I saw home ownership cause former coworkers limit their economic mobility
to within _one section of one city._ For them, it was an option to simply wait
until a desirable job opened up in the areas with a bad-but-not-intolerable
commute, or they were able to mitigate commutes by negotiating flexible hours
with their employers (e.g. working 7am to 3pm, or 11am to 8pm, or only coming
in 2-3 days a week, etc).

I recognize Los Angeles' traffic is about as bad as it gets as far as a home
ownership "anchoring" someone, but if home ownership causes a reduction in
mobility for professionals in a high-earning and high-demand field, I can only
imagine the kind of impact it has on the rest of America.

~~~
ihsw
This is a striking contrast to recent news of Amazon's expansion of their
grocery delivery system to Los Angeles. How do they justify offering grocery
delivery services in a city with such poor urban planning?

~~~
greenyoda
Delivery has "locality of reference" (to borrow a term from computer science):
if the density of customers is high enough, a delivery truck can travel to a
particular neighborhood and spend the entire day on local streets, where the
traffic isn't bad. The truck only has to use the crowded freeways to travel
from the warehouse to the neighborhood and back. And it can do that during
off-peak traffic hours -- few people need to have their groceries delivered at
8am, when everyone is on their way to work. When I visited LA, I was surprised
at how empty the freeways could be outside of rush hour.

------
KevinEldon
Don't miss Philip's point, "let’s always keep in mind that John Ioannidis
would predict that a subsequent paper will find a different answer".

Anecdotally, my father has a pretty specialized job and got burned repeatedly
in the housing market as he moved around for work. In his case it probably
would have been a lot better for him if he'd rented almost every home he ever
owned. In my case, I'm settling down with my family, friends, and extended
family. I do not intend to move for another 20-30 years regardless of work. I
think people should take this view seriously... if you want to stay where you
are for 30 years and are willing do that despite potentially limited career
(and financial) opportunities then owning a home makes sense (and managing
your finances to enable this kind of lifestyle makes even more sense). If you
want to pursue "the best" work or are concerned about financial security from
employment you should consider not buying a home so you can remain flexible.

I obviously haven't read the paper, but the idea of home ownership negatively
affecting employment is interesting.

~~~
huherto
This calculator helps you decide if it is better to buy or rent.

[http://www.nytimes.com/interactive/business/buy-rent-
calcula...](http://www.nytimes.com/interactive/business/buy-rent-
calculator.html?_r=0)

As you pointed it out, a key factor is how long you are going to remain in the
house.

~~~
secabeen
That calculator is good, but simplifies a lot of things. For example, there's
no easy way to include rent you charge to someone renting a room in your home.
After using the NYTimes one a bunch of times, I found this one, which is much
more full-featured:

<http://michaelbluejay.com/house/rentvsbuy.html>

~~~
huherto
shiny! Thanks

------
midas
I find our community desire towards home ownership to be really strange. For
example, we all need to eat food everyday for the rest of our lives, but you
almost never hear society bemoaning how few people own their own means to
produce food! We seem perfectly happy to pay for what we use (i.e. rent)
instead of investing in production (i.e. own).

If you know you're going to live somewhere for 20 years it usually makes a lot
of sense to own, but I don't know why we ascribe that aspiration to all our
real estate needs.

~~~
AJ007
It makes a lot of sense in retrospect.

People want to own homes because #1 they believe it is a status symbol and #2
they believe the value will go up. Remove either and it wouldn't be so hot.
Fractional reserve lending and economic policies toward price inflation have
punished renters for a long time.

Try convincing someone who thinks home ownership is a good deal that it isn't.
I've never succeeded.

~~~
greenyoda
There are many other reasons why people might want to own homes:

\- Even if the value doesn't go up, eventually you'll pay off your mortgage
and be able to live more cheaply. If you rent, you'll be paying rent (which
will probably be steadily increasing) forever. If there's inflation, your
fixed mortgage payment becomes smaller and smaller in real dollars over time.
And while you're paying your mortgage, you get to deduct the interest from
your taxes.

\- If you own your home, you can't be suddenly thrown out because the landlord
wants to demolish the building, or raises the rent to more than you can afford
(e.g., due to the gentrification of the neighborhood).

\- In some areas, owning a home can give you access to better school
districts.

\- Detached houses have more space and privacy than apartments. You're less
likely to be disturbed by your neighbors, etc.

\- A home that you own is yours to do with as you please. Want to put a pool
in the backyard? Sure. Want to remodel the kitchen? Just call a contractor.
Want to convert your garage to an office? That's OK. Want to rent out your
house while you go on vacation? There's nobody you need to ask for approval.

~~~
eru
> \- Even if the value doesn't go up, eventually you'll pay off your mortgage
> and be able to live more cheaply. If you rent, you'll be paying rent (which
> will probably be steadily increasing) forever. If there's inflation, your
> fixed mortgage payment becomes smaller and smaller in real dollars over
> time. And while you're paying your mortgage, you get to deduct the interest
> from your taxes.

That's a bit misleading. The money you save by not paying off a mortgage
should of course go to other investments. You can even put it into housing
(just not into the house you live in, for the sake of argument).

> \- In some areas, owning a home can give you access to better school
> districts.

American laws are strange.

> \- Detached houses have more space and privacy than apartments. You're less
> likely to be disturbed by your neighbors, etc.

You can rent houses, too. And you can buy apartments, too.

> \- A home that you own is yours to do with as you please. Want to put a pool
> in the backyard? Sure. Want to remodel the kitchen? Just call a contractor.
> Want to convert your garage to an office? That's OK. Want to rent out your
> house while you go on vacation? There's nobody you need to ask for approval.

Yes, that's an important benefit. On the other hand, if anything's broken or
there's legal trouble, it's yours to fix, too. It's a bit like owning a
business vs just working in one.

------
obstacle1
The paper actually is available for free online [1]. Someone better let Phil
know about Google Scholar.

[1] - <http://www.feifeishi.iie.com/publications/wp/wp13-3.pdf>

~~~
jpdoctor
Look at Figure 2 on pg 17. Does anyone really want to draw conclusions on
homeownership and unemployment based on that data?

------
tocomment
By this argument shouldn't marriage also lead to unemployment since you have
to live near your spouses job as well and often can't relocate.

~~~
rfugger
Yes, human relationships are a real drag on the economy.

~~~
gordaco
And, more importantly: the other way around.

------
moocow01
I have to wonder though if in aggregate if a predominantly rent based society
will lead to even more wealth disparity. While the housing bubble was not
exactly the epitome of economic health, we've seen what has happened in the
bay area recently. For most bay area tech workers there has been a substantial
rise in employability and wages but on the other hand a significant portion on
average of the individual economic gains typically have been funneled to
increased rent that seems to go up 10-15% every year out here. Heck we even
see this in North Dakota with the new oil jobs - the rent for a place in the
middle of nowhere has skyrocketed. I guess the point being that Im unsure that
low unemployment and mobility strongly correspond to more accumulated wealth
for employees.

~~~
bsims
I spend quite a bit of time analyzing lending data and personal finances.

I've also observed that when comparing a group of loans, those with homes were
almost as likely to default on a loan as those without homes and it had
minimal impact despite most people assuming that having a home makes a person
"more stable." I have definitely seen many situations where a home becomes the
priority over life, family and personal finances as well.

On the flip side, this argument also assumes that if consumers get better
jobs, make more money, etc. that they'll actually save and/or invest more and
the unfortunate reality is that most people just tend to increase their rate
of consumption proportionately to their income/bonus increase.

So the nature of having a forced savings plan through a mortgage payment
requires them to put money away yet still limiting their ability to move or
take better positions.

------
saosebastiao
Can we please get rid of the mortgage tax deduction now?

~~~
mynegation
Why? I know many Canadians would kill for mortgage interest tax deduction.

~~~
jfb
From my perspective, it's a huge giveaway to people who are already doing
fine, which offends me, morally; and it distorts the housing market in
dangerous and destructive ways. Aside from employer sponsored health
insurance, it's the most pernicious bit of Federal social engineering.

~~~
AnthonyMouse
>From my perspective, it's a huge giveaway to people who are already doing
fine, which offends me, morally

If it makes you feel any better, the home owner in reality gets practically
none of the money. Since everybody gets the deduction it just causes everyone
to have to bid that much more in order to be the highest offer. And the higher
prices don't really spur new home construction to compensate as you might
expect, because the areas with high demand are largely urban areas with
minimal available undeveloped land and zoning regulations that often prohibit
the construction of higher density housing that would relieve pricing
pressure. The result is that the big winners are banks, which end up making
larger loans and collecting that much more government-subsidized interest.

~~~
X-Istence
I didn't even take this into account when purchasing my home ... I made sure
to buy within my means regardless of possible tax deductions I get to maybe
make in the future...

~~~
apendleton
Whether you did or didn't individually, the price of housing overall reflects
the fact that people generally do. It's outside of your hands.

------
foobarian
Hear, hear. How dare the serfs even think about owning their own home. They
should be grateful to the merciful overlords for the opportunity to rent
crappy overpriced and cramped housing where they can't nail things to the wall
or have a dog. Not to mention the ever present threat of eviction by sale.

That's what popped into my head when I read that post. But I lived in
Cambridge, MA long enough to have a chip or two on my shoulder. :-)

------
miles
The NYT article linked to in the comments section has much more detail:

Challenge to Dogma on Owning a Home
[http://www.nytimes.com/2013/05/10/business/homeownership-
may...](http://www.nytimes.com/2013/05/10/business/homeownership-may-actually-
cause-unemployment.html?pagewanted=all&_r=0)

------
gordaco
I haven't read the paper, but I'm from Spain and I've seen several things that
support the hypothesis.

1) Home ownership ties you to a geographical location. If you're renting you
have more freedom to move, and increased mobility leads to less unemployment.
This is the most obvious reason, but not the only one.

2) If mortgages take away a big enough portion of the paycheck, consumers have
on average less money to spend in another things, and lack of demand can
cripple the economy, while banks leech all the money ("extractive elites"). If
rent was more prevalent, it would be easier to move to a more affordable house
from time to time, driving down home prices (it would be kind of a "less
captive" market; I'm not sure if that makes as much sense as I think).

3) The prevalence of mortgages gives employers a lot of leverage. If you're in
serious debt, you're more likely to accept worse condition on your current
job, because you can't afford to miss a payment (miss enough payments and you
_lose your house but keep your debt_ ). Maybe it's a cultural thing, but this
is a very real thing here in Spain. The effect is that employers can force
worse conditions (especially lower salaries) on employees, which, again,
creates a lack of demand because people don't have money to spend. Even worse,
once you hit certain level of unemployment (which nevertheless was very high
in Spain to begin with), it affects you even if you don't have a mortgage,
because there is a huge amount of people willing to work for peanuts, driving
salaries down for everyone and creating a feedback that reinforces the whole
process.

------
avdempsey
It sounds like a straightforward premise: if you're glued to one spot you're
eligible for fewer jobs. I wouldn't discount that, except there will be an
upside as well: an area with lots of homes might be a good place for more
businesses. The question would be which factor has a greater effect?

And unfortunately we don't know what the rest of the article says. That's a
pity, because we can't see how they account for the giant freaking housing
bubble the US had that immediately preceded an epic crash in the economy.

~~~
kijin
> _an area with lots of homes might be a good place for more businesses_

That will be true even if the people who live in those homes are only renting.
People need stuff, therefore stuff sells well where there are lots of people.
Homeowners need just as much toilet paper as renters do.

Of course, if your business caters to people who extensively modify their
homes, you might do better in a neighborhood of homeowners than in a
neighborhood of renters. But the DIY home improvement industry only accounts
for a small fraction of the total business opportunities that a neighborhood
offers.

------
wtvanhest
I don't own a home, and don't advocate owning one for anyone who is younger
and needs to move to find great employment, but a HUGE potential error jumped
out at me right away.

Home ownership accelerates in markets which are more leveraged to housing.
Take Florida for example. Many people who live there work in various real
estate jobs, when prices start to rise, they rise much more rapidly by
percentage, and they fall much more rapidly. If the majority of a state's high
paying jobs are in real estate, more people will be jobless following boom and
bust cycles. Additionally, more people will be getting raises, high commission
checks etc. which leads to greater home ownership in those states.

Without knowing if the author of the paper took this in to account, the
research is completely worthless. Cyclicality in finance is a constant major
issue and should be examined not only systematically, but also by asset class,
area etc.

Cyclicality usually explains a very great degree of issues with research.

[added] A second potential explanation is that the 3 best markets for jobs
have the highest prices on houses which prevents people from buying. New York,
San Fran, Boston. Obviously California would go against my previous
explanation.

~~~
pessimizer
Are you criticizing a paper you have never read because of its ignoring of a
facet of a possible dataset that you are not certain they have used and
admittedly have no idea that if they used it, that facet was ignored?

~~~
Zarathust
To be fair, most of the comments here are merely conjectures about what the
paper might say

~~~
wtvanhest
I can't read it due to the pay wall so I must comment only on what is
available.

------
k-mcgrady
Very interesting. I'd like to see how this applies in other countries,
particularly smaller ones. For example, where I'm from most people wouldn't
commute more than 60 mins for a job. However it is possible to commute from
one side of the country to a job at the other side in under 3 hours. I would
presume therefore that the loss of mobility caused by home ownership wouldn't
affect the labour market as much in smaller countries.

~~~
salmonellaeater
By that logic, every US state could close its borders (if such a thing were
possible) and cut down unemployment. Maybe the effect on unemployment _from
home ownership_ is smaller in small countries, but the fact that it's a small
country has other, worse, effects on its economy.

------
greghinch
There's a number of other factors that usually coincide with home ownership
that would produce the same effects, chiefly domestic partnership and
children. The problem seems to be more that the increase in necessity of labor
mobility has far outpaced the progression of transportation. Public transit in
most of the US is a bad joke. And high speed transit is all but non-existent.
I don't really have any idea how we reduce the car-culture, but that seems to
be the root of the problem, not home ownership.

------
mbateman
The paper:
[http://www.andrewoswald.com/docs/finalmayHomeOwnershipUnemBl...](http://www.andrewoswald.com/docs/finalmayHomeOwnershipUnemBlanchflowerOswald2013.pdf)

------
taliesinb
Though I'm not a singularitarian, I do think we are probably going to live an
order of magnitude longer than our parents.

Given that, buying a house seems too... parochial.

~~~
gmrple
You think we're going to be living into our 800s?

~~~
huherto
No, he thinks our parents only lived 8 years.

------
jleyank
I was told this and I tell others: If you have to move to take a new job,
don't buy. If, however, you can reasonably map a career (or, say, 10 years of
it) without moving, the system is set up to reward home ownership
(particularly for US-ians I think). It's not an investment, although it has
aspects of one. It's not a boat anchor either, but can serve as a good
approximation in down times. Just be #!*&% careful when committing serious
coin to the man.

------
31reasons
The solution is very simple: Remote Work. I hope research like this one help
make remote work be seen as a positive force in overall well being of the
country. It saves Time, Energy and Gives More Opportunities and so Reduces
Unemployment. It think its a great deal. I hope government can give some
incentives to businesses for hiring remote workers by lowering employment tax.

------
frozenport
What about construction jobs that aren't permanent?

------
johnvschmitt
Hmm... It seems the major factor is simply overbuilding.

"Overbuilding in one year leads to lack of building in subsequent years".

As building homes is a big cause of temporary job growth.

Also, I doubt long commutes lead to higher unemployment rates, as the economic
pressures would step in. Companies hire to meet consumer demand. If they need
workers, they'll raise wages, or open satellite offices where the workers are.
They don't just stop hiring & let their production go down when they have
orders.

------
burritocop
Buying a house ruined my life. I bought a house with my savings after the
collapse. Got it really cheap (no mortgage). Only problem is now I want to
sell it but can't. There are no jobs around here.

I do have a crappy job. I could probably do better if I could afford to move
away. I've considered just abandoning the property or selling it for basically
nothing.

Buying sucks. As does renting. I've seriously considered van life.

<http://cheaprvlivingblog.com/>

~~~
gaadd33
Why not rent it? If you got it really cheap just rent it for the cost of the
property taxes.

~~~
burritocop
Renting includes a number of financial and legal responsibilities.

Bad tenants can be a nightmare. I don't really want to risk having to deal
with that drama.

Right now I'm thinking I'll just have to sell the house at a loss. Not really
so bad. It won't be a tremendous loss and I have lived in 3 years. I guess in
the end it would have been the same had I just rented.

Previous to this I did rent for a long time and hated that.

I really am serious about the van thing.

~~~
gnoway
Have you looked into working with a property manager? They do all the
screening and tenant management stuff for you. You give them a fixed
percentage of the rent and I guess you're the wallet for repairs, etc.

Unless their take of the expected rent would result in a negative cash flow
for you, it seems like a better option than selling at a loss.

------
manicdee
Which state was cherry-picked for this study?

Did they control for other influences on labour mobility such as working
couples, children, pets, race/colour and car ownership?

~~~
DanBC
(<https://news.ycombinator.com/item?id=5823345>)

A web search for some sentences in the abstract returns some useful hits for
the paper online. Someone else posted (after you had posted) a link to the
full paper.

Here's a nice PDF. (<http://www.piie.com/publications/wp/wp13-3.pdf>)

