"We explore the hypothesis that high home-ownership damages the labor market"

Mombers emailed in this report which he found via the NY Times:

Our results are relevant to, and may be worrying for, a range of policymakers and researchers. We find that rises in the home-ownership rate in a US state are a precursor to eventual sharp rises in unemployment in that state. The elasticity exceeds unity: A doubling of the rate of home-ownership in a US state is followed in the long-run by more than a doubling of the later unemployment rate.

What mechanism might explain this? We show that rises in home-ownership lead to three problems:
(i) lower levels of labor mobility,
(ii) greater commuting times, and
(iii) fewer new businesses.

Our argument is not that owners themselves are disproportionately unemployed. The evidence suggests, instead, that the housing market can produce negative ‘externalities’ upon the labor market. The time lags are long. That gradualness may explain why these important patterns are so little-known.

The report is well worth a read in full. There's a typo at the top of Table 8 on page 28, it says "country" when it clearly means "county".

Problem is, the employment rate among owner-occupiers is higher than for tenants, so if a rise in homeownership levels causes unemployment (it precedes it so it is more than correlation) that unemployment hits the tenants hardest. To give an extreme example:

Year 1. 60% are owner-occupiers and 40% are tenants, there is a 10% unemployment rate and 90% of each group are in work.
Year 30. 80% are owner-occupiers and 20% are tenants, there is a 15% unemployment rate but all the owner-occupiers are in work and there is a 75% unemployment rate among tenants.

I'll tell you what I make of it:

i) The geographic mobility of owner-occupiers is lower than for tenants, but their employment rate is still higher. This is probably because owner-ocupiers are self-selecting. People with steady jobs can get a purchase mortgage much more easily. If owner-occupiers lose their jobs before they can pay it off, they are likely to become tenants again.

ii) and iii) The greater commuting times arise because of NIMBYism, as the report says. Existing homeowners in steady jobs in the area don't allow new places of work to be built, so "everybody else" has to look further and further afield.

iv) Then add to this the economic fall out of the massive debts which Home-Owner-Ism land people in. The more of people's income goes on interest payments (which are effectively pooled and shared by small groups of super-wealthy in a small number of financial centres), the less money they have to spend in the area, so the local economy (actually, everything apart from the financial centres) dries up.

David Blanchlower gives the game away

From City AM:

Mervyn King argued that “there seemed no reason to expect the worst recession since the 1930s” and nobody saw it coming because "no-one believed it would happen". Actually many people in the City did. They spotted that house price to earnings ratios had reached unsustainably high levels and the only way was down. Of course, banking crises are old as the hills; plus the 1929 Great Crash started in the Florida housing market.

Yup.

Even if you don't know the first thing about banking (and very few ever will, which puzzles me because it is very simple), you must know about house prices - what they are and how they are changing. Once land prices start rising rapidly (far more rapidly than rents), you know that there must be a credit bubble (the two go hand in hand). You know that bubbles always pop and that 'financial crises' can be very unpleasant indeed, particularly when the people in charge are in complete denial that there ever was a bubble in the first place and spend all their time (and our money) on trying to keep it inflated.

Blanchflower is one of the few people to point out that the 1929 crash was a spillover from the 1920s land price bubble in the USA (which continued the 18-year boom-bust cycle of the 19th century), which in turn was the result of a credit bubble (and the usual subsidies to land ownership). The stock market bubble, which popped in 1929 was the result of the people in charge trying to keep the land price bubble inflated.

There is the same level of denial about Japan's "lost decade". Most articles or textbooks refer to the Japanese share price bubble but ignore the Japanese land price bubble which happened at the same time, and which was far larger in magnitude, and involved a far greater amount of credit/indebtedness. And there is the same denial in the UK right now - there is a widely held delusion that if only we can "kick start" the housing market (i.e. get prices back up to 2007 levels with a combination of easier credit and yet more subsidies) that everything will magically turn out all right again.

"House prices may fall 30%"

Prof David Blanchflower of the Monetary Policy Committee has finally awoken to the realisation that the most reliable indicator of house price affordability is the ratio of house prices-to-incomes.

No doubt those that refuse to accept it is was a massive credit bubble/asset price bubble will blame any falls on this phenomenom.