With the 1990s UK labour market no longer providing ”employment for life”, a housing market that forces employees into owner-occupation at an early stage of their lives may be highly inappropriate since it significantly reduces job mobility and hence labour market flexibility. That is the conclusion of Professor Andrew Henley writing in the latest issue of the Economic Journal.
Using data from the British Household Panel Survey (BHPS), he finds that:
• Home-owners in the UK tend not to move house in response to better labour market conditions elsewhere in the country. House moves for job reasons typically account for only 16% of all moves.
• Housing wealth makes moving area for a new job easier: house movers who also move jobs typically have 5-10% more housing equity than house movers who don”t move jobs.
• Households with negative equity are much less mobile than others: a household with £10,000 of negative equity will be nine times less likely to move than one, otherwise identical, with zero negative equity.
Professor Henley finds that levels of housing equity are an important factor in explaining mobility, with positive equity assisting mobility but negative equity acting as a serious impediment. In addition, high transactions costs in selling and moving house mean that owner-occupiers tend not to migrate if local labour market conditions are tough, or if travel-to-work times in current jobs are high.
Negative equity households face a ”double-hurdle” if stable local employment is difficult to obtain, because of the transaction cost problem and the need to finance the deposit on the next purchase. Hence high levels of owner-occupation (or an under-supply of good quality private rental accommodation) act as a brake on labour market flexibility in the UK, especially during periods of depressed housing market activity.
”Residential Mobility, Housing Equity and the Labour Market” by Andrew Henley is published in the March 1998 issue of the Economic Journal. Henley is Professor of Economics at the University of Wales, Aberystwyth. His paper uses BHPS data made available through the ESRC Data Archive, originally collected by the ESRC Research Centre on Micro-social Change at the University of Essex.
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