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Owning a Home: Damaging the Economy?

SS5-11-13Even in King Solomon’s time, houses represented stability, prosperity –and even wisdom, as we’ve seen in proverbs such as 9:1, “Wisdom hath built herself a house,” the King extols the virtues of a strong, solid dwelling. That idea forms the core of the traditional “American Dream” of a prosperous and stable life, too. But now new findings by a pair of economists suggest that homeownership may actually contribute to economic stagnation and unemployment.

o conclusions may open A new article in the New York Times reports hat Dartmouth economist David G. Blanchflower and Andrew J Oswald of England’s University of Warwick conclude that in areas with high levels of residential homeowners, unemployment rates tend to rise.

The study has been met with skepticism and sharp criticism. After all, critics point out, private and government-funded research has found repeatedly that home ownership contributes to stability. Homeowners’ children do better in schools and have lower drop out rates, teen pregnancies are down in areas with high rates of homeownership, and homeowners tend to be better employed with more job stability. Neighborhoods are safer, they argue, and better maintained when most residents own their homes.

But although Blanchflower and Oswald aren’t saying that homeowners themselves are more likely to be unemployed, they point to data that shows that in the five US states with the largest increase in residential homeownership between 1950 and 3010, unemployment rates were higher in 2010 than in previous years. These data aren’t actually new; the notion was first raised back in 1996, but dismissed by other researchers who misread the evidence as comparing the unemployment rates of homeowners and renters.

If Blanchflower and Oswald are right, what’s going on? The connections between homeownership and unemployment are complex, but a key factor appears to be mobility. Homeowners stay put fur years, preferring to commute to jobs that may be far away. With most homes in an area already “taken,” there’s no room for growth through an influx of new residents, and industries and businesses may not be willing to expand into these areas because of issues of cost, congestion and a relatively limited pool of potential employees.

The darker side of homeownership came to light during the great housing collapse of a few years ago when many owners lost their homes to foreclosure and many more went “underwater” on their loans. The aftermath of that crisis and ongoing economic issues left large numbers of people locked out of home buying entirely and at least in part fueled a growth sport in the rental housing market.

The findings of these two researchers are sparking debate among economists and financial experts in Europe and the US and raising fears that if the tradition of homeownership challenged that could mean changes in the tax benefits offered to home owners, and in zoning laws that encourage single family homes.

Changes like that won’t happen soon – if the happen at all. But for income property investors following Jason Hartman’s guidelines for building wealth in rental property, the professors conclusions may open doors to another American Dream.  (Top image: Flickr/byrdiegyrl)

The Solomon Success Team

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