PM Pick

Only weirdos rent

Further evidence for the insanity of the "ownership society." Just about everyone in the econoblogosphere has weighed in on this NYT article by Louis Uchitelle about how the housing market is affecting the labor pool.

Mobility opens up job opportunities, allowing workers to go where they are most needed. When housing is not an obstacle, more than five million men and women, nearly 4 percent of the nation’s work force, move annually from one place to another — to a new job after a layoff, or to higher-paying work, or to the next rung in a career, often the goal of a corporate transfer.... Now that mobility is increasingly restricted. Unable to sell their homes easily and move on, tens of thousands of people ... are making the labor force less flexible just as a weakening economy puts pressure on workers to move to wherever companies are still hiring.
Moving is a transaction cost in the labor market, and the housing bubble aftermath has made that cost exceedingly high. This is leading to more of what economists call frictional unemployment, raising the jobless numbers and undermining economic confidence and reinforcing the cyclical factors that sustain recessions. As Calculated Risk notes, "Less worker mobility is kind of like arteriosclerosis of the economy. It lowers the overall growth potential."

One way to ensure a more mobile labor pool is to encourage people to rent rather than own, so nothing ties them down to moribund regions like, say, Detroit, where the housing problems are perhaps the worst. Instead, the government does what it can to discourage renting, subsidizing interest payments made on real estate purchases. (David Leonhardt examines the foolishness of this in this NYT piece.) As Tim Harford pointed out in a Slate piece, "English economist Andrew Oswald has shown that across European countries, and across U.S. states, high levels of home ownership are correlated with high levels of unemployment. More conventional factors such as generous welfare benefits or high levels of unionization don't explain unemployment nearly as well as the tendency to own houses. Renting your home and staying flexible do wonders for your chances of always finding an interesting job to do." (He also notes that some people don't care about interesting work or don't believe they'll find it, and would rather have a cheap home with no job prospects; this creates sinks of discouraged workers in certain regions.)

Yves Smith adds this excellent point: "Uchitelle fails to acknowledge that home ownership has been discussed in the economic literature and found to inhibit labor mobility even in good times. Guess we can't question that American dream." The point is that Uchitelle's story is about the hardships of selling and owning homes in downturns, as if there were no alternative to home ownership. There is one: renting. But in America, it seems taboo to mention in a normative fashion. Only weirdos rent.

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