Homeownership and Unemployment: The Roles of Leverage and Public Housing

50 Pages Posted: 16 Oct 2003

See all articles by Paul Flatau

Paul Flatau

The University of Western Australia

Matt Forbes

Murdoch University - Economics Department

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

Gavin A. Wood

RMIT University - School of Economics, Finance and Marketing

Date Written: October 2003

Abstract

Oswald hypothesizes that regions and countries with high homeownership rates will experience higher natural rates of unemployment and that rising homeownership in OECD countries since the 1960s provides a key explanation for the rise in the natural rate of unemployment over the same time period. Recent tests of the Oswald thesis have found the opposite. This study differs from earlier ones both by considering different states of ownership (degrees of leverage) and types of tenancy (private, public, and rent-free) and by examining data from Australia, rather than the U.S. We demonstrate that the recent anti-Oswald results are the result of (1) highly leveraged owners having a greater incentive to remain employed and to become reemployed more rapidly that outright owners and (2) those paying below-market rents having a lower incentive to avoid unemployment or become reemployed than those paying market rents. The only positive Oswald result is that females who are outright owners have significantly slower exits from unemployment. Overall, homeownership does not increase unemployment. Finally, in line with expectations but in contrast to some earlier studies, our results indicate a significant impact of the predicted replacement ratio (unemployment benefits to wage if reemployed) on unemployment behavior. Persons with a higher predicted ratio are significantly more likely to become unemployed, and unemployed females with a higher predicted replacement ratio have longer unemployment spells than those with lower predicted ratios.

Suggested Citation

Flatau, Paul and Forbes, Matt and Hendershott, Patric H. and Wood, Gavin A., Homeownership and Unemployment: The Roles of Leverage and Public Housing (October 2003). NBER Working Paper No. w10021, Available at SSRN: https://ssrn.com/abstract=457543

Paul Flatau

The University of Western Australia

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Matt Forbes

Murdoch University - Economics Department

South Streeet
Murdoch, West Australia 6150
Australia

Patric H. Hendershott (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gavin A. Wood

RMIT University - School of Economics, Finance and Marketing ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

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