Rising Homeownership May Lead to Rising Unemployment

There was an interesting article in the New York Times last week that caught my attention: Homeownership May Actually Cause Unemployment

Homeownership is a good thing, for the individual and for society. Or so American governments, whether Republican or Democrat, have long believed. The benefits have been cited repeatedly in justifying the existence and expansion of the tax breaks given to home buyers.

But maybe it isn’t nearly as good as had been thought.

A new study by two economists concludes that rising levels of homeownership in a state “are a precursor to eventual sharp rises in unemployment in that state.” As more homes are owned, in other words, fewer people have jobs.

This week’s poll is inspired by the story, but since I only linked to it in the comments and I’m interested in seeing more broad discussion on the topic, I’m dedicating a regular post to the topic. Commenter “whatsmyname” weighed in, accusing the study authors of having ulterior motives:

English translation:

Cutting taxes for the rich without decreasing tax revenues will require increasing tax revenues from the not rich. We think they’re too stupid to notice when we say it openly. Oftentimes, we are right.

Here’s the problem with that claim, though. It has been well-documented by numerous sources that most of the benefit from the mortgage interest deduction is in fact collected by “the rich.” The “not rich” have been duped into thinking it’s a great deal for them when in reality they get very little from it. Here are a few links on that topic:

So what do you think about the claim that increasing homeownership in a region leads to a later increase in unemployment? I think the authors make a compelling case, although I admit that I have not yet read the entire original study. I’m a fan of homeownership, but I also understand that it’s not right for everyone, and it is ill-suited to the increasingly mobile workforce of today’s economy.

[Update: Here’s the link to the original paper from the Peterson Institute for International Economics: Does High Home-Ownership Impair the Labor Market?]

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1
    Dave0 says:

    Traditionally I don’t think it was a problem. The link happened when, after housing prices started falling, people became underwater on their loans and they had no mobility left. Thus, they were forced to only consider jobs with reasonable commuting distance. When home prices rise slow and steady like they did for decades before this isn’t a problem. If you get a job somewhere else, sell your home and move. Only recently has that not been an option.

    With the exception of the decreased mobility, encouraging home ownership is a good thing for society. It gives people an incentive to start neighborhood watch groups, maintain their home, get to know their neighbors, and generally create a strong and safe community. It makes sense for government to encourage people to own homes through tax incentives and programs like Fannie Mae and Freddie Mac.

  2. 2
    whatsmyname says:

    Tim, Tim, Tim, You forgot to include the quote I was interpreting:

    “The mortgage interest deduction is one of the largest tax subsidies in the Internal Revenue Code,” Eric J. Toder, the co-director of the Urban-Brookings Tax Policy Center, noted in Congressional testimony last month. “Achieving a revenue-neutral tax reform that reduces marginal tax rates significantly would be difficult or impossible to achieve without cutting back the mortgage interest deduction or some other equally popular and widely used provisions.”

    For moderately advanced English speakers, this paragraph is about matching decreases in the marginal rate with cutting back the mortgage deduction. I don’t know why it was pertinent to a serious look at unemployment causation. (Note also that they somehow forgot interest deductions on margin accounts – probably not used by rich enough people). In point of fact, and unlike with margin accounts, the mortgage deduction is limited to interest on a $1MM loan, so at today’s rate it tops out at about $40,000 deduction – maybe a $20,000 tax break max. Here is a thought experiment for your quantitative mind. How many “rich” people earning $100,000 per year must lose their home mortgage deduction to match a 3% marginal rate decrease for one (I don’t know, equally rich?) person making $100 million per year? Go ahead, I’ll wait.

    But forget correlation for a moment. Let’s talk causation. You found their arguments compelling?

    “If the correlation is real, what could be the cause? The professors say they believe that high homeownership in an area leads to people staying put and commuting farther and farther to jobs, creating cost and congestion for companies and other workers. They speculate that the role of zoning may be important, as communities dominated by homeowners resort to “not in my backyard” efforts that block new businesses that could create jobs.”

    You were thinking perhaps that people move to Seattle or LA because the commute is not so tough as it is in Biloxi? Did those nimby’s in Wheeling and Montgomery chase out the businesses to the easy zoning of Portland and the Bay area. This is laughable.
    But you go, boy.

  3. 3
    Carl says:

    RE: whatsmyname @ 2 – Yeah, the study seems weak on its face without some analysis of reverse causation. Perhaps high unemployment causes higher home ownership? Did we learn nothing from the Rogoff-Reinhart economic paper fiasco of last month? Anyone can put out a causation theory – proving it in a soft science like economics is much harder. I personally don’t find the study’s authors convincing in their statement that home ownership in southern states equates to unemployment.

    And Tim, why delete the first thread on this subject (with comments) that you posted on May 11?

  4. 4
    whatsmyname says:

    RE: Carl @ 3
    Carl, I would theorize that if you had a place with few prospects, the more ambitious young and less established people would leave for areas with greater opportunity, thereby decreasing the proportion of non-homeowners, and by that fact, increasing the proportion of homeowners. This is not the same as “growing” home ownership.

  5. 5

    If increased homeownership rates is followed by a later rise in the unemployment percentage, it doesn’t mean at all that one has to do with the other.
    When economic times are good, what do people do? They buy houses.
    What happens when there’s an economic slowdown? People lose their jobs.
    No region’s economy is the same all the time. Every region has it’s ups and downs. Things go good for a while and then they don’t.
    There are good reasons to buy a house. There are good reasons to rent. and there are good reasons for and against the mortgage interest deduction. But this one? Nah. Do it for the jobs. Do it for the children. “I’d like to buy a house, but I’ve got to keep renting because I don’t want to put people out of work” doesn’t have a great ring to it.

  6. 6
    Erik says:

    This is a correlation, not a causation as learned last weekend from an angry blogger who I will not name :). I think it’s a fancy way to say it’s coincidental or there is no correlation.
    Those states that this is happening to are uneducated and they aren’t smart enough to own. Maybe it’s not that they aren’t smart, but they don’t consider the repercussions of their actions like we do here. Did you notice? It’s the deep south.

  7. 7
    Erik says:

    RE: Dave0 @ 1
    “encouraging home ownership is a good thing for society. It gives people an incentive to start neighborhood watch groups” ha ha ha… nice.

    There are other ways to make friends in the neighborhood other than taking on a huge debt. Lets all go to the Casino and lose $5000 and start a gambling addicts group. It would be cheaper than buying a house.

  8. 8
    mike says:

    The mortgage deduction is close to non-existent for serfs purchasing median priced homes in Seattle with 20% down. Great, you save around $100/month. Big deal.

  9. 9
    corndogs says:

    (H) = High homeownership rate
    (L) = Low homeownership rate

    Unemployment rates as of Mar 2013 – national average is 7.6%

    Wow – things must have changed a quite a bit since 2010.
    West Virginia (H) now has an unemployment rate of 7.0 beating out Wisconsin (L) that sits at 7.1.

    Alabama (H) is sitting at 7.2 beating out Washington State(L) at 7.3, as a right-to-work state Alabama has attracted Mercedes and now Airbus… As a union state, Washington is losing Boeing to South Carolina..

    At 8.4 South Carolina(H) beats out California(L) (another union state) which is still dragging along at a whopping 9.4 (none of the southern states from the report have a higher unemployment rate than California)

    North Dakota unemployment rate is very low because of shale oil jobs. It has absolutely nothing to do with whether people are renting or owning houses.

    Just another theory debunked with the passage of time.

    Washington 7.3 Union – Boeing leaving
    Oregon 8.2 Union
    California 9.4 Union
    North Dakota 3.3 Right to work state
    Wisconsin 7.1

    West Virginia 7.0 most improved since 2010
    Mississippi 9.4
    Alabama 7.2 Right to work brought Mercedes now Airbus coming
    Georgia 8.4
    South Carolina 8.4 Right to work brought Boeing now Boeing expanding

  10. 10

    Hades Yes

    In an America of cooked booked U3 unemployment rates, scarcity of engineers allegations as we we butcher axed 150K engineer jobs from 2006-2010, etc, etc…

    The home owner opportunitists see nothing wrong with lying about anything involved with the collapsed economy. When households have to gobble up 2-3 jobs to buy real estate [or just high Seattle rent for that matter] in the Seattle area and leave the job market even more scarce….of course it causes more household unemployment.

    A friend of my daughter’s from Kansas pays $600/mo rent for a house he just moved into last month there. Find that kind of housing in the Seattle area….LOL

  11. 11
    David B. says:

    Home ownership has both positive and negative effects on both the individuals that engage in it and on society as a whole. For a long time, Americans pretended as if only the upsides existed. The housing bust served as a rude wake-up call for many.

  12. 12
    Erik says:

    RE: David B. @ 11
    Thank you for summarizing that for us cause we didn’t know that.

  13. 13
    wreckingbull says:

    RE: Corndogs @ 9

    I don’t buy the study at face value either, but cherry picking a few cities over a three year period is not going to teach us anything.

    I find it interesting that this blog is full own home owners. Many of us hold multiple properties. One segment of these home owners completely freak out at the notion that home ownership may not be everything the REIC advertises to to be, while the other segment is willing to discuss this contrary view. We both have skin in the game, why do you get your panties so bunched up?

  14. 14
    The Tim says:

    By Carl @ 3:

    Yeah, the study seems weak on its face without some analysis of reverse causation. Perhaps high unemployment causes higher home ownership?

    That would be a pretty amazing trick since there’s a time lag between the increasing homeownership and the increasing unemployment. From the article:

    “The time lags are long,” they write, up to five years before a rise in homeownership hurts an area’s unemployment rate. “That gradualness may explain why these important patterns are so little known.”

    Reverse causation would mean that the effects of high unemployment somehow travel back in time and cause high home ownership years earlier.

    By Carl @ 3:

    And Tim, why delete the first thread on this subject (with comments) that you posted on May 11?

    I don’t delete things here, don’t know what you’re referring to.

  15. 15
    Blurtman says:

    Do preppers rent or own? On the one hand, if you are going to wind up in a shoot-out when they come for your guns, odds are, the home goes up in flames. So how much work will you really put into upgrades?

    On the other hand, it would take a very tolerant landlord to OK the steel reinforced doors, gun holes, and crawl space bunker.

  16. 16
    Erik says:

    RE: mike @ 8
    I would love to have an extra $100/month. Maybe it’s cause I don’t have that much money, but it seems like a lot to me.

  17. 17
    mojo says:

    This analysis is a joke. Data cutting gone awry with no common sense applied. The article that should have been written:

    Employment Opportunity Creates Population Growth and Competition For Housing, Reducing Homeownership Rates

    Most metro areas with good employment opportunities have grown a lot since 1950, and the housing has gotten a lot more expensive (and somewhat unaffordable)…but that doesn’t stop people from chasing the jobs. Hence we have low homeownership rates in the areas with the best employment opportunities and growth. Doesn’t that make a lot more sense?

  18. 18
    Carl says:

    RE: The Tim @ 14 – Here’s a graph of homeownership rates for the U.S. over the past 50 years or so from wikipedia (granted not the most authoritative source, but best i could find). http://en.wikipedia.org/wiki/Homeownership_in_the_United_States

    Here’s the unemployment rate for the U.S since 1993, again from wikipedia:


    If there is a correlation, the charts should have the same shape, but time shifted (adjusting for scale). Maybe there is or there isn’t. Dig deep enough, or select the appropriate data (i.e. a few southern states), and I am sure you can find any correlation you want. Just like i selectively chose a couple of charts to show a lack of correlation. The point is that without some type of scientific controlled methodology, economics is in the words of the elder Bush, just voodoo.

    In fact, notice how unemployment in the U.S. went up from 2000-2003. This “caused” home ownership to go to all time highs. Similarly, as unemployment went down from 2004-2007, this “caused” home ownership to go down as well.

    My theory may be incorrect, but I use it just to illustrate the possibility that the authors conclusion should be taken with a grain of salt. They may be right – who knows?

  19. 19
    WestSeattleDave says:

    Let’s not be too quick to dismiss this study. It seems that the authors realize that they going against conventional wisdom. The following quote from the article:

    “Such statistics are not persuasive by themselves, and the professors know it. Many factors obviously influence unemployment rates in any given state.

    But they say that the statistics show those patterns no matter how much they control for other variables and that the same picture emerges if they look at employment growth rather than unemployment rates. They say that the pattern existed before the crash of the housing market that began in 2007 and that the statistics are not dependent on including the more recent period.”

    In other words, they looked at the data in a number of different ways, and came to the same conclusion.

  20. 20
    Carl says:

    RE: WestSeattleDave @ 19 – I am not dismissing the study, just accepting it for what it is. To wit, an observation of correlation between two statistical measures. Nothing more, nothing less.

  21. 21

    By Blurtman @ 15:

    Do preppers rent or own? On the one hand, if you are going to wind up in a shoot-out when they come for your guns, odds are, the home goes up in flames. So how much work will you really put into upgrades?

    On the other hand, it would take a very tolerant landlord to OK the steel reinforced doors, gun holes, and crawl space bunker.

    If it’s Armageddon we’re looking at, we don’t have to worry about no stinkin landlords, man.
    If the sheet’s going to hit the fan, you want to take out a zero down, 40 year loan. If the steel reinforced walls survive, the banks probably won’t.

  22. 22
    mike says:

    By Erik @ 16:

    RE: mike @ 8
    I would love to have an extra $100/month. Maybe it’s cause I don’t have that much money, but it seems like a lot to me.

    It’s more the absurdity that on a $400K+ house, you get a pittance back even though these homes are priced around double the national median and (largely) require a much higher than median salary to afford. $100/mo is roughly 5% of the monthly payment and probably less than 2% of gross income. It’s something, but not much in this scenario. The idea that you need to finance a house priced closed to 3 times the national median for the deduction to amount to more than a hill of beans just reinforces the notion that it’s aimed at the upper part of the upper middle class.

    The other less wealthy side group that benefits of course are single people with a lower standard deduction, people taking out subprime/FHA loans with high interest rates, people putting down low down payments and financing more principal meanwhile paying mortgage insurance. I fail to see how it is a responsible use of tax money to subsidize this. No slight meant towards single homeowners, but why do we need to subsidize them to a greater degree? The other groups, well, that’s just encouraging people to go into more debt on shakier financials.

  23. 23
    Jonness says:

    By mike @ 22

    It’s more the absurdity that on a $400K+ house, you get a pittance back even though these homes are priced around double the national median and (largely) require a much higher than median salary to afford. $100/mo is roughly 5% of the monthly payment and probably less than 2% of gross income.

    Worse yet, in a two-income household, you save less. And actually, you don’t really save that, because the property taxes are eating you alive. And just when you think you have enough principal paid off to start breathing normally again, you no longer pay enough interest and taxes to make it worthwhile to itemize. Before you know it, your back on the the standard $13K household deduction.

    So here is my question. In a two income family, it seems to me, both can file their taxes individually. Thus, one person can pay all housing related costs, and the other can pay for other things like food and energy. Then the person who paid the PITI on the house can claim the entire deduction based upon a single income and get back far more money.

    For instance, lets say the taxes and interest come to $17K for the year. When both parties file separately, with one claiming the mortgage deduction and the other claiming the standard deduction, this equates to a tax refund of (.25(17000)) + (.25(6500)) = $5,875. When both parties file as a household and claim the mortgage, it equates to a tax refund of (.25(17000)) = $4,250. When both parties take the standard deduction it equates to (.25(13000))=$3,250.

    What other tax benefits that I’m not taking into consideration are preventing most people from choosing the first scenario?

  24. 24
    whatsmyname says:

    Holy smokes, I just found out about another well documented phenomena. Look at the facts in these links, (and there are many, many more):


    Boy, talk about labor mobility. This apparently happens in both high ownership and low ownership states, although Florida seems to have more than their fair share. Science is fun.

    Jonness @23:
    “What other tax benefits that I’m not taking into consideration are preventing most people from choosing the first scenario?”
    1. “Married, filing separately” box on tax return.
    2. “Married, filing separately” tax rates.

  25. 25
    corndogs says:

    RE: wreckingbull @ 13 – Cherry picking? Is that the new numbnuts catch phrase or what? You can’t blog for ten minutes without coming across some dunces usage of the term cherry picking. Well Wreckedbung, you should learn what the term means… Ol’ Corndog here commented on the 10 cities that were the subject of the study, that’s not cherry picking. That’s called refuting the facts of the study. All that’s required to invalidate the study is to show the stated correlation of the study is no longer valid for the cities in question… that’s what Corndog did. As of 2013 there is no correlation. Another way to weaken the argument was to show other equally ridiculous correlations. That’s what Corndog did on the previous thread. The 5 Southern states have very strong correlations with Gonorrhea, Chlamydia, Syphilis and incarceration.. much stronger correlations than unemployment actually. So is homeownership causing these things as well, probably not.

    However, Corndog doesn’t need a study by a couple of dipsh!ts that couldn’t pass Engineering courses to understand the value of mobility. As a young larva, much like TeenErik, Corndog bought rental properties and never actually a house for himself, thus maintaining his mobility.. It was a good way to go. That doesn’t mean the study isn’t bullsh!t.

    As far as having skin in the game, true Corndog has a lot of capital in the game, but when you have as much money as Corndog and you’ve paid cash for most of what you own, it’s really not skin any more, it’s just more or less money. Now I know that puts a grain of sand in your vagina when Corndog talks about his dough, why do you think that is?

  26. 26
    Jonness says:

    I found the answer:

    “If one spouse decides to itemize deductions, then the other spouse must do so as well, even if his or her itemized deductions are less than the standard deduction.”

    Shack up and don’t get married. Then my method wins in a two income household.

  27. 27
    Erik says:

    RE: Corndogs @ 25
    I like that you think someone that passes engineering classes is smart because I have passed many and done well. If you didn’t respect that, you would tear me up without regard because I do make a lot of mistakes. Not sure why you think it’s great to have an engineering degree other than you probably have one, so you glorify it. There are lots of guys like you where I work. They do something, and it becomes the right path. They are usually the stress analysts. I think people that do that are self righteous morons, but whatever. I wouldn’t be surprised if you were a stress analyst since you are always trying to shoot holes in everything.
    I personally don’t have more respect for someone that has passed engineering classes. If I can graduate from UW, then anybody can do it. I honestly think that. I worked hard, but it is easy once you understand the math. I’m not good at math, I just practiced a lot until it became ingrained.
    Anyway, good for you for staying mobile while renting C-dogs. You are a smart person, and i’m sure you did well. The goal of life is the achieve happiness. If you have done that, you are successful in my book.
    Btw, I took my mom to a mariners game on sunday for mothers day and told her some real estate investor online calls me teen-erik. We had a good laugh. She thought it was pretty funny. Thanks for that.

  28. 28
    Lo Ball Jones says:

    What I have been proposing is that we need neither home ownership nor renting but a hybrid where I can buy some kind of “financial instrument” through rent payments that not only lets me live somewhere, like an apartment, but also lets me build equity. So I would invest in this security like a 401k, and over time I would have some kind of value. Then say if I did actually have to move to Kansas, instead of having to sell a home, I merely transfer my security to a Kansas realty company and move there. As I pay rent I increase the value of this security and I become a more desirable “investor” for companies and local governments to move somewhere. I am “vested” in the system, but at the same time, I’m not bound geographically.

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