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High Home Ownership Is Strongly Linked To High Unemployment

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High Home Ownership Is Strongly Linked To High Unemployment

LONDON (Reuters) - High levels of home ownership are strongly linked to subsequent rises in unemployment because labor mobility becomes reduced, according to new research.

Using data going back to 1950 across all U.S. states except Alaska and Hawaii, Warwick University economics professor Andrew Oswald finds that the lag from ownership levels to unemployment rates can take up to five years to show up.

But he said the linkage, established using data on millions of randomly sampled Americans, was extraordinarily robust.

Doubling home ownership in a state can lead to more than a doubling of the jobless rate.

"I have become convinced that by boosting home ownership we have ruined our labor market," Oswald said.

He conducted his research with David Blanchflower, a professor of economics at Dartmouth College, New Hampshire, who used to be a member of the Bank of England's Monetary Policy Committee.

Oswald said the research may go some way to explaining why Spain, with a home ownership rate of 80 percent, has unemployment above 25 percent, whereas Switzerland, with a 30 percent ownership rate, has a jobless rate of just 3 percent.

Germany, another nation of renters rather than home owners, also has relatively low unemployment.

Studies carried out independently by a Finnish researcher produced similar findings for the Nordic nation, Oswald said.

Home ownership unwittingly impairs the labor market by deterring people from moving in search of work, a process that is time-consuming and expensive; long commuting times might also discourage a householder from taking a particular job, his research suggests.

Another theory is that home owners are opposed to new businesses opening up in their neighborhoods - a phenomenon known in Britain as NIMBY, or Not In My Back Yard.

"This suggests that, without politicians being aware of it, high home ownership may slowly erode a country's industrial base," Oswald wrote in a paper for Warwick University and Chatham House, a London think tank.

He said his statistical correlations should be deeply worrying for politicians in those countries that have promoted home ownership through tax breaks and subsidized mortgages.

Britain is due to expand one such home-loan scheme, called Help to Buy, at the start of next year.

"In Britain we have incredibly cheap mortgages and we're giving help-to-buy inducements on top of that in a world where house prices are already rising far above the rate of inflation that the Bank of England says it wants. It's unbelievably illogical," Oswald told Reuters.

(Reporting By Alan Wheatley; Editing by Giles Elgood)

http://www.businessinsider.com/high-home-ownership-is-strongly-linked-to-high-unemployment-2013-11

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"In Britain we have incredibly cheap mortgages and we're giving help-to-buy inducements on top of that in a world where house prices are already rising far above the rate of inflation that the Bank of England says it wants. It's unbelievably illogical,"

Nice quote there from Warwick University economics professor Andrew Oswald.

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In the 80s they were saying that reduced mobility causes the inability to fill vacancies so unemployed people would rather stay local claiming benefits than move to jobs where there's little or no accommodation. That's when they claimed there were jobs to fill.

That's one of the reasons that they brought in changes to the rental market and introduced and expanded BTLs.

That was their claim then although now that there seems to be plenty of BTLs they're trying another tack which suggests the problem is more complicated than their analysis as their analysis doesn't seem to consider stuff like people imports etc or that the wages paid are insufficient to pay for accommodation after moving and that house prices are generally far too high etc and crazy lending.

Edited by billybong

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5 year lag?

that would be 5 years after many had borrowed to the Hilt, that the Bust kicked in....shows that they have managed to hold up booms for 5 years longer than they should have...of course, the price of doing so was steadily declining interest rates...we and the US have reached 0%...there is nowhere to go now other than printing.

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Nice quote there from Warwick University economics professor Andrew Oswald.

Osward doesnt understand. The British electorate ARE highly Illogical. Theyve voted Liblabcon for the last 100 years. How much more evidence does one need that they arent quite the full ticket.

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Germany, another nation of renters rather than home owners, also has relatively low unemployment

So how come the Germans worked that out all those years ago but in the UK it apparently takes until 2013 and someone from Warwick University to discover the idea.

Edited by billybong

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So how come the Germans worked that out all those years ago but in the UK it apparently takes until 2013 and someone from Warwick University to discover the idea.

Pitchforks at dawn?

Dont come between the Brits and their house prices. Break with the pro-HPI narrative at a dinner party and those gentle housewives will become snarling pack animals.

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So how come the Germans worked that out all those years ago but in the UK it apparently takes until 2013 and someone from Warwick University to discover the idea.

Germany is an interesting case because whilst they might have low ownership rates, they also have long security of tenure. So one might conclude that's there's little difference between ownership and renting in Germany. I imagine you'd have to look at rate of turnover or rate of moving house rather than just type of tenure. Do Germans move more often than Brits for employment I wonder? or is it just that they have a superior social model and protect their manufacturing industries for the long term, whereas the US and UK spend most of their time trying to demolish their industries.

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Home ownership unwittingly impairs the labor market by deterring people from moving in search of work, a process that is time-consuming and expensive; long commuting times might also discourage a householder from taking a particular job, his research suggests.

Another theory is that home owners are opposed to new businesses opening up in their neighborhoods - a phenomenon known in Britain as NIMBY, or Not In My Back Yard.

"This suggests that, without politicians being aware of it, high home ownership may slowly erode a country's industrial base," Oswald wrote in a paper for Warwick University and Chatham House, a London think tank.

Yes but exactly how "unwitting" are these policies. The answer is they aren't unwitting because they've been banging on about labour mobility etc for decades.

Politicians are aware of it alright - and Osborne has just taken another swipe at the UK's job market with his Help to Buy schemes.

Next they'll be complaining about the unemployed and their jobseeker benefits.

Edited by billybong

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It's also about attitudes. People were more mobile fifty years ago, upping sticks and travelling to the towns where the work was.

Now those sort of big internal population movements don't happen. You can see several reasons for that:

Welfare state - you can stay where you are amongst your friends and family and have a reasonable lifestyle despite being unemployed

EU immigrants - the financial reasons for shifting don't work when the job opportunity is low wage because of the EU immigrants who are prepared to move and work for that

Lack of cheap accommodation - I work away now; the last time I did this I had a flat, this time I have a hotel because, amazingly, it's cheaper.

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Reminder to the Tories on here: Mrs Thatcher considered home ownership one of the real cornerstones of her beliefs. So much so that all the council houses were sold off cheap.

The Germans are far more likely to have a job for life than UK workers, irrespective of the home ownership status. So that's the reverse of what they say.

Presumably, MP's will not now need to buy London properties for their work ?

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The problem is that there are some strong underlying trends over time in this sample:

1. Since 1950, home ownership rates have generally risen.

2. Since 1950, unemployment rates have generally risen.

Lots of things have changed since 1950, it seems arbitrary to pick out these two trends and say one is causing the other. You could just as easily blame rising unemployment on the decline of the jitterbug or the rise in car ownership.

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Reminder to the Tories on here: Mrs Thatcher considered home ownership one of the real cornerstones of her beliefs. So much so that all the council houses were sold off cheap.

The Germans are far more likely to have a job for life than UK workers, irrespective of the home ownership status. So that's the reverse of what they say.

Presumably, MP's will not now need to buy London properties for their work ?

Theres a difference between the availability of mobility and the actual exercising of that availability. Id suggest its got more to do with less de-industrialization in Germany than anything else. Maybe Im wrong, but Id like to see actual evidence that germans are infact mobile in practice.

Its not like the eastern euro's have any problem with mobility to the UK. Its just bolshie scousers who seem to be glued to the same bloody estate they were conceived on.

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So how come the Germans worked that out all those years ago but in the UK it apparently takes until 2013 and someone from Warwick University to discover the idea.

In Germany women are encouraged to stay at home and look after their children. There was a documentary on the BBC, Make Me a German, women who worked instead of looking after their children were given what seemed a derogatory name. Less joint income mortgages means less HPI. If women in the UK stopped signing up for joint income mortgages we would have an HPC. Then with cheaper housing those who wanted to work would have more disposable income.

http://www.bbc.co.uk/programmes/b038669g

Thread about it on here

http://www.housepricecrash.co.uk/forum/index.php?showtopic=192535&st=0

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Theres a difference between the availability of mobility and the actual exercising of that availability. Id suggest its got more to do with less de-industrialization in Germany than anything else. Maybe Im wrong, but Id like to see actual evidence that germans are infact mobile in practice.

Its not like the eastern euro's have any problem with mobility to the UK. Its just bolshie scousers who seem to be glued to the same bloody estate they were conceived on.

Without home ownership, just remember, you could be required to live on that same bloody estate.

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Germany is an interesting case because whilst they might have low ownership rates, they also have long security of tenure. So one might conclude that's there's little difference between ownership and renting in Germany. I imagine you'd have to look at rate of turnover or rate of moving house rather than just type of tenure. Do Germans move more often than Brits for employment I wonder? or is it just that they have a superior social model and protect their manufacturing industries for the long term, whereas the US and UK spend most of their time trying to demolish their industries.

Not just that. I have a 'secure tenancy' but can just give my notice and leave at anytime.

On the other hand you might have an AST on a 12 month contract and be stuck there because you can't move (or get gouged for a ton of fee's for breaking the contract).

The problem is a legal rental vehicle designed purely to guarantee a landlords cash flow for 6/12 months.

The UK isn't a country as such, its a huge hedge fund massively leveraged on 'existing property assets' and this Uni guy needs to get with the real agenda, which is, it ain't run for ordinary folk, but for landowners and landlords.

Edited by aSecureTenant

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