Previously, Chatterbox endorsed journalist Phillip Longman's observation that U.S. tax subsidies for homeownership are bad for the economy. If the money spent subsidizing the American Dream were invested elsewhere, Longman argued in his book Thrift, it might do more to boost productivity. (See "Does Homeowning Really Promote Good Citizenship?") Now Richard K. Green, of the University of Wisconsin, whose study on homeownership's possibly good effect on child-rearing Chatterbox cited in a follow-up item, has alerted Chatterbox to another study that suggests a direct bad economic effect that Longman seems not to have thought of: Namely, homeownership increases unemployment.
"We can put Europe back to work ... by reducing home ownership," writes Andrew J. Oswald of the University of Warwick in the U.K., in a highly provocative "non-technical paper" produced last month. (To read it, click here.) Oswald begins by citing three intriguing statistics. Among major industrial nations, Spain has both the highest unemployment rate and the highest rate of homeownership; Switzerland has both the lowest unemployment rate and the lowest rate of homeownership; and during the postwar economic boom of the 1950s and '60s, the United States (like Spain today) had both the highest unemployment rate and the highest rate of homeownership. In Oswald's view, none of this is mere coincidence. It is well known that a nation's unemployment rate depends in part on workers' willingness to uproot themselves to find new and better jobs. This is something that many people, for various reasons, are generally reluctant to do. Homeownership, says Oswald, is one of these reasons. "Selling a home and moving is expensive," he points out. In addition, a high rate of homeownership means there isn't a lot of rental housing available, so it's hard for young European workers living at home with Mom and Dad ("les enfants kangarou," a French magazine tagged them last year) to move someplace new and get a place of their own. There's also a spiral effect: People who don't want to move have a greater tendency to take jobs they're not well suited for, which raises costs of production and lowers incomes for everyone. Homeowners are more likely to impose zoning restrictions that inhibit economic growth. And finally, when people aren't willing to move, traffic congestion increases, in effect raising for everyone else the transportation cost of having a job and thereby "raising the attractiveness of not working."
Chatterbox is dazzled by this argument, although he admits it has a few problems (most notably: Why is it that the United States right now has low unemployment and a high rate of homeownership?) Obviously the economic picture right now in Europe, which is suffering from high unemployment, is quite different from that here. Still, perhaps one of the presidential candidates should take this up as an issue for the 2000 election: Let's abolish the mortgage interest deduction and create even more jobs in this red-hot economy! Or, if that's too scary for Wall Street: Let's wait till unemployment goes back up, and then abolish the mortgage interest deduction.
[Addendum, 6/8/99: Chatterbox somehow missed that an earlier study by Oswald on the same subject was the basis of an "Everyday Economics" column by Slate's Steven E. Landsburg two years ago. Click here to read Landsburg's take.]