A new study suggests that higher home ownership could lead to higher unemployment. Be sure to wash it down with a tall glass of skepticism.
The study is not in the same league as the recently debunked Reinhart-Rogoff research that provided the intellectual foundation for dangerous austerity measures around the world. But, like Reinhart and Rogoff's work, these findings also seem prone to misunderstanding and misuse.
The new paper, by Andrew Oswald of Warwick University in England and David Blanchflower of Dartmouth, claims that big increases in home ownership in U.S. states in recent decades have typically led to big increases in unemployment. The paper has been out there for a few weeks now, but was just recently published by the National Bureau of Economic Research.
Oswald made similar claims in the 1990s about housing and unemployment in Europe. The NBER came along in 2003 and shot holes in his earlier work, with its own study that came to some opposite conclusions, including data that showed home owners were less likely to be unemployed than renters.
Undaunted, Oswald kept crunching numbers, this time focusing on the United States. Meanwhile, just as Harvard economists Kenneth Rogoff and Carmen Reinhart took their data on government debt and economic growth and used it to warn publicly about the evils of too much debt, Oswald has warned publicly about the evils of too much home ownership.
And some of the new paper's assertions make some sense. It is probably true, as Oswald and Blanchflower suggest, that people who own homes have less mobility to get new and better jobs and are less likely to approve job-creating developments in their neighborhoods.
But there are many reasons to treat these findings with more care than they've gotten so far. For one thing, the correlations between changes in home ownership and changes in unemployment really aren't all that high.
What's more, many in the media seem to be reaching for the conclusion that homeownership generally leads to higher unemployment. There is no evidence for that.
In fact, there are examples that suggest the opposite is true: Minnesota and Iowa have two of the highest home ownership rates in the country -- more than 70 percent for each -- but unemployment rates of 5.3 percent and 4.7 percent, respectively, far lower than the national average of 7.5 percent. California has one of the lowest home-ownership rates in the nation, but 9 percent unemployment.
The biggest problem with the Oswald-Blanchflower paper, or at least many media interpretations of it, is one that afflicted Reinhart and Rogoff: a leap from weak correlation straight to causation. We really have no way of knowing yet if high home ownership causes high unemployment, and yet that's the message many seem to be taking immediately from Oswald and Blanchflower.
I should mention at this point that Oswald and Blanchflower's paper was published by the Peter G. Peterson Institute For International Economics. This is a think tank founded by former Nixon official and tireless deficit scold Peter G. Peterson, who has spent the past few decades and many millions of dollars warning about the evils of government debt and deficits and trying to shred the social safety net to fix those problems.
Discouraging home ownership by ending or shrinking the mortgage-interest tax deduction could be one way to raise a lot more money for the government and close those scary deficits. And that might actually not be such a terrible idea. It's potentially a more progressive approach than privatizing Social Security, for example.
It's also not a bad idea to make sure that home ownership is not puffed up to unsustainable levels merely to pad banker bonuses. That is a recipe for all kinds of trouble, including but not limited to higher unemployment. Renting is often a lot easier and cheaper than owning a home, and it's healthy that we have started to treat the American Dream of home ownership with more skepticism, too.
But this line of thinking also feeds some of the more extreme beliefs about housing out there, particularly the theory that the Community Reinvestment Act of 1977 and other programs to encourage home ownership among the poor caused the financial crisis. That argument has been thoroughly debunked, but its adherents -- like the die-hard fans of austerity -- have not given up the ghost. The Oswald-Blanchflower paper could breathe new life into their cause.