New research* by Professor Andrew Oswald at Warwick University, which he will present at the Department for Education and Employment after the election, suggests that the consequences for the jobs market of an upward trend in home ownership have been profound. Increasing owner-occupancy and declining private renting have been associated with an upward trend in unemployment. Private renters have a noticeably faster rate of movement out of unemployment into jobs.
Teeth-grindingly irritating as it might be to admit it, there might have been a grain of truth in Norman Tebbit's "get on your bike" message - not that the government he belonged to did anything to make mobility any easier. Quite the reverse - extending home ownership was one of the icons of the Thatcher era. The expense and difficulty of selling a house and buying another is one of the things that prevents people who lose their jobs from moving on.
It makes sense to suppose that the markets for housing and for jobs are linked. The "structural" unemployment rate in a country, or the rate below which inflationary pressures will emerge, will depend on a whole range of factors that influence the costs of searching for work versus remaining unemployed. These include obvious things such as the level of benefit payments, but an unemployed person's job search outside a very restricted geographical area will also depend on how easy it is to move house. The fact that it is expensive and difficult to move cements high unemployment rates in particular towns and areas.
Yet policies to reduce unemployment ignore the possibility that housing matters. We have had deregulation in the labour market and in product markets, but the housing market is more rigid than ever. Policy-makers have also paid scant attention to the geographical distortion a high rate of home ownership imposes on the economy, despite the fact that the housing market boom is once again a South-eastern phenomenon. Southern house prices that ratchet higher in every boom will make mobility between jobs in different regions even less likely.
The evidence Professor Oswald presents is compelling. He looks at patterns of unemployment and home ownership over time across countries, and across regions within countries. In all cases, the higher the rate of owner- occupancy, the higher the (male) unemployment rate. Thus high-unemployment Finland, Ireland and Switzerland have widespread owner-occupancy, while countries like Portugal and Spain, not to mention the US, where renting is far more the norm, have very low jobless rates. The housing market is better than alternative explanations like benefit rates at explaining the international pattern.
It is a pattern that holds over time, too. The bigger the increase in owner-occupancy, the bigger the rise in unemployment. A 10 percentage point rise in home ownership adds 1.5 to 2 percentage points of joblessness.
In the UK, for example, the home-ownership trend cannot explain all of the trend rise in unemployment, but can account for the bulk of it. With a 30 percentage point rise in home ownership during the past few decades, it can explain around six additional percentage points on the unemployment rate. Events like the oil price shock will lie behind the rest of the increase.
If his theory is correct, it has profound implications for economic policy. In 1950 only 29 per cent of families owned their own home. By the early 1990s the owner-occupation rate had climbed to 70 per cent. The proportion renting privately had declined from 53 per cent to less than 10 per cent.
Separate research** fingers extensive home ownership as one of the reasons for the regional imbalances in the British economy. One of the driving forces of the late 1980s boom and subsequent bust was soaring house prices combined with equity withdrawal following the relaxation of mortgage controls. Housing wealth increased from pounds 307bn in 1980 to more than pounds 1,000bn by 1989.
The housing-driven boom was concentrated in the South-east and led to a widening of the north-south divide. This was amplified by cuts in the upper rate of income tax, which favoured the South-east because that is where most high earners live.
The author, Professor Chris Hamnett of King's College, London, writes: "The boom of the late 1980s was not a national phenomenon but was in fact a boom in, and for, the South." This pattern is being repeated in the current housing and consumer boom.
The failure of economic policy to take account of the housing market will have serious repercussions for countries which join the single European currency. The main economic concern about EMU is whether some countries would tend to suffer persistent high unemployment if the possibility of a reduction in their exchange rate were removed. If the single currency does turn out to condemn some countries to higher-than-average joblessness, it will be important to devise ways of making it easier for people to move across national borders.
In Britain, housing policy must move up the agenda. It is unfinished business in the creation of a flexible and low-unemployment economy, and in the fair distribution of opportunities between the regions.
* 'A conjecture on the explanation for high unemployment in the industrialised nations,' A Oswald, Warwick Economic Research Papers no. 475, Dec 1996.
**'A Stroke of the Chancellor's Pen', by C Hamnett in 'Environment and Planning 1997', vol 29 pp129-147.