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The Impact of Unemployment on Homeownership in England

Auteurs :
Stéphane Gregoir
Director of the EDHEC Economics Research Centre, EDHEC Business School
Research Director, EDHEC Business School

Tristan-Pierre Maury
Deputy Research Director,
Accounting, Law, Finance and Economics Department, EDHEC Business Schoo

The labour and housing markets are closely bound up with each other. For any household, a position taken on one of these markets affects the decisions taken in the other.

EDHEC Position Paper

EDHEC Position Paper

The labour and housing markets are closely bound up with each other. For any household, a position taken on one of these markets affects the decisions taken in the other: home tenure (homeowner, private or social renter), for example, affects the likelihood of finding a job through differences in residential mobility; and the labour market position (employed, unemployed, out of the labour force) partly conditions access to mortgages or to the social housing sector.
The unemployment rate in the United Kingdom is at a seventeen-year high, and housing prices have been falling for the past two years. Analysing possible market movements in the coming years requires an understanding of the most significant mechanisms involved and a quantitative assessment of their magnitude. For English households, we use an original setup to study, from a descriptive point of view, the joint dynamics of these two positions: we model simultaneously at household level positions in the labour market and housing tenure as well as changes in wages and housing costs. As in much of the literature, we find that the probability of being employed one year later is lower for unemployed renters than for unemployed owner-occupiers. We also find evidence that social renters (and especially those with 100% rent rebates) experience the longest spells of unemployment. Similarly, tenants in the social housing sector have lower transition rates to homeownership than private renters, regardless of their labour market position, even after differences in the socio-demographic backgrounds of the two groups are corrected for. Finally, combining these empirical results, we illustrate the consequences of a labour market shock on the housing sector. We simulate a counterfactual sudden increase of one percentage point in the English unemployment rate in 2005 (i.e., around 250,000 more unemployed) and keep housing prices unchanged: this simulation leads to a substantial fall of about 30,000 owner-occupiers two years later. This result suggests that the changes in the labour market have an important and lasting impact on future home tenure choices.
Type :
Position Paper
Dates :
Créé le 24 juin 2011
Complément d'informations :
For more information, please contact Joanne Finlay, EDHEC Research and Development Department [ joanne.finlay@edhec.edu ]

The contents of this paper do not necessarily reflect the opinions of EDHEC Business School.

Economie

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