Here’s one thing everyone knows, whatever their political or economic leanings: Home ownership is good for the economy. Homeowners are savers, homeowners are great employees because they need their jobs, homeowners care about their communities, homeowners build communities, for goodness’ sake. The list goes on – except that maybe it doesn’t.
In fact, according to a recent article in the New York Times, home ownership may have been a bad thing for the U.S. economy – which raises questions on the Canadian side of the border as well.
The New York Times piece cites a study by two economists, one from Dartmouth College in New Hampshire and one from the University of Warwick in England. They looked at five decades of economic data on U.S. states, comparing home ownership and unemployment rates.
Due to structural changes in the U.S. economy, all states saw their unemployment rates rise over the period. However, the five states with the highest increases in home ownership experienced an a 6.3-percentage-point gain in the unemployment rate, compared with 3.5 percentage points for those states where home ownership went up the least.
Their conclusion: Communities with high levels of home ownership have a bunch of strikes against them.
Most of what they see as the downside of home ownership relates to things that make workers and hiring less flexible. Home ownership, for example, means people are tied to one place and cannot easily move to where jobs are available. In a good housing market, that might not be a problem – even these days it is pretty easy to sell a house in Toronto and head to Calgary if you get offered a job there. If you have a house in Detroit, however, heading to better prospects anywhere at all is an issue, since your mortgage may be higher than the market value of your house.
The authors have other issues with homeowners too, saying that they make a community less open to new business, through zoning and regulations and the like. That makes sense, too. After all, in a suburb where everyone commutes to work, people tend to worry about the environmental damage new plants can do, rather than the fact that they create work for someone. (The killing of Ontario gas plants in Oakville and Mississauga comes to mind.)
So is the answer to discourage home ownership? Probably not. After all, although there may be some validity in the authors’ arguments, that does not negate the more familiar positives of home ownership.
Then again, in Canada this may not be the time to pump the home-ownership machine anyway. The Bank of Canada (among others) is already concerned that the Canadian market is too hot, for reasons unrelated to the potential damage to the labour market. The idea that home ownership itself could kill jobs is yet another reason to try to cool things down.
Linda Nazareth is the principal of Relentless Economics Inc. and a senior fellow at the Macdonald Laurier Institute.