Do we actually want to be a society of homeowners?

High rates of home ownership have large negative effects on the labour market. Why are we trying to boost it?

It is widely understood that Britain's housing market is (how to put this delicately) sub-par.

Nearly everyone agrees that there are problems which need fixing. We have a society built around homeowning, in which the average age of a first time buyer is inexorably rising. We have a social housing system which involves the state paying rents to private sector landlords, even as private sector rents are rising faster than inflation. We have a planning regime which is slow enough to deliver judgments that it encourages developers to create "banks" of property with permission, just in case the time comes to build. And widespread as these problems are, they are an order of magnitude worse in London and the South East.

But while there's agreement on the problems – and much discussion about what policies might ease them – there's far less examination of what the ideal housing market would look like.

Would homes be owned by individuals, companies or the state? Would multifamily accommodation (blocks of flats, in other words) make up a higher proportion of the housing mix, or is our love affair with the house permanent? How acceptable is flat sharing? What about room sharing? What are the minimum standards we should accept from new builds? Is the problem that mortgages aren't available, or that house prices are too high? Is the solution to insecure tenancies more secure tenancies or fewer tenancies full stop?

These questions seem uncomfortably micro-level to be discussing, but at least some of them are crucial to answer before we can make a real stab at implementing effective reforms to housing policy. And the most important one of all is the one which no-one wants to address: why do we want to own our own homes?

Obviously, given current policy, the answer is clear. The last two decades have been about shoring up the housing market, guaranteeing house prices will never fall, and making it easier to buy in. Conversely, renting has remained as insecure as ever, but with more and more people renting more and more houses, it's a landlord's market.

But if policy could be reformed to make it harder to buy a house but in a way which made renting a far better choice, should it?

One way to answer the question is to look at the wider effects of owning or renting your home. A paper from our own David Blanchflower and the University of Warwick's Andrew Oswald does just that, examining the effects of high rates of home-ownership on one aspect of the economy: the labour market.

Oswald argued twenty years ago that a lot of people owning their own houses would result in higher rates of unemployment. The reasoning is intuitive: a home is a burden, keeping you tied to one place; and a mortgage keeps you tied to a minimum salary. Insofar as it is easier to move out of a rental property than it is to sell a house and buy a new one, we would then expect people who own homes (all else being equal) to be less flexible about the sort of work they can take – and so we'd expect them to be more likely to be unemployed.

Aggregate it up, and we would expect economies with higher levels of home-ownership to have higher unemployment rates. And that's what Blanchflower and Oswald have found:

We find that rises in the home-ownership rate in a US state are a precursor to eventual sharp rises in unemployment in that state… A doubling of the rate of home-ownership in a US state is followed in the long-run by more than a doubling of the later unemployment rate.

Oswald's 1990s argument is backed up by the fact that areas with higher ownership have lower mobility – as we would expect – but there are two further effects that the authors find.

The first is that high home-ownership areas have longer commute-to-work times. That could be because home-ownership tends to promote less dense housing, due to the difficulties in selling rather than renting multifamily accommodation, and the contrary difficulties in renting rather than selling single houses.

The second is that high home-ownership areas have lower rates of business formation. The authors speculate that "this may be due to zoning or NIMBY effects", and offer it as a point for future research.

The conclusion, that "the housing market can generate important negative externalities upon the labor market", poses some tricky questions for nearly everyone discussing housing policy in Britain today. We may still want to build more, lower rents, and improve quality of life for tenants; but this research suggests that, rather than making it so that more people can buy their homes, we should make it so that more people don't feel like they have to buy their own homes. In short, make renting fairer, not buying easier.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Getty
Show Hide image

Why Angela Merkel's comments about the UK and US shouldn't be given too much weight

The Chancellor's comments are aimed at a domestic and European audience, and she won't be abandoning Anglo-German relationships just yet.

Angela Merkel’s latest remarks do not seem well-judged but should not be given undue significance. Speaking as part of a rally in Munich for her sister party, the CSU, the German Chancellor claimed “we Europeans must really take our own fate into our hands”.

The comments should be read in the context of September's German elections and Merkel’s determination to restrain the fortune of her main political rival, Martin Schulz – obviously a strong Europhile and a committed Trump critic. Sigmar Gabriel - previously seen as a candidate to lead the left-wing SPD - has for some time been pressing for Germany and Europe to have “enough self-confidence” to stand up to Trump. He called for a “self-confident position, not just on behalf of us Germans but all Europeans”. Merkel is in part responding to this pressure.

Her words were well received by her audience. The beer hall crowd erupted into sustained applause. But taking an implicit pop at Donald Trump is hardly likely to be a divisive tactic at such a gathering. Criticising the UK post-Brexit and the US under Trump is the sort of virtue signalling guaranteed to ensure a good clap.

It’s not clear that the comments represent that much of a new departure, as she herself has since claimed. She said something similar earlier this year. In January, after the publication of Donald Trump’s interview with The Times and Bild, she said that “we Europeans have our fate in our own hands”.

At one level what Merkel said is something of a truism: in two year’s time Britain will no longer be directly deciding the fate of the EU. In future no British Prime Minister will attend the European Council, and British MEPs will leave the Parliament at the next round of European elections in 2019. Yet Merkel’s words “we Europeans”, conflate Europe and the EU, something she has previously rejected. Back in July last year, at a joint press conference with Theresa May, she said: “the UK after all remains part of Europe, if not of the Union”.

At the same press conference, Merkel also confirmed that the EU and the UK would need to continue to work together. At that time she even used the first person plural to include Britain, saying “we have certain missions also to fulfil with the rest of the world” – there the ‘we’ meant Britain and the EU, now the 'we' excludes Britain.

Her comments surely also mark a frustration born of difficulties at the G7 summit over climate change, but Britain and Germany agreed at the meeting in Sicily on the Paris Accord. More broadly, the next few months will be crucial for determining the future relationship between Britain and the EU. There will be many difficult negotiations ahead.

Merkel is widely expected to remain the German Chancellor after this autumn’s election. As the single most powerful individual in the EU27, she is the most crucial person in determining future relations between the UK and the EU. Indeed, to some extent, it was her intransigence during Cameron’s ‘renegotiation’ which precipitated Brexit itself. She also needs to watch with care growing irritation across the EU at the (perceived) extent of German influence and control over the institutions and direction of the European project. Recent reports in the Frankfurter Allgemeine Zeitung which suggested a Merkel plan for Jens Weidmann of the Bundesbank to succeed Mario Draghi at the ECB have not gone down well across southern Europe. For those critics, the hands controlling the fate of Europe are Merkel’s.

Brexit remains a crucial challenge for the EU. How the issue is handled will shape the future of the Union. Many across Europe’s capitals are worried that Brussels risks driving Britain further away than Brexit will require; they are worried lest the Channel becomes metaphorically wider and Britain turns its back on the continent. On the UK side, Theresa May has accepted the EU, and particularly Merkel’s, insistence, that there can be no cherry picking, and therefore she has committed to leaving the single market as well as the EU. May has offered a “deep and special” partnership and a comprehensive free trading arrangement. Merkel should welcome Britain’s clarity. She must work with new French President Emmanuel Macron and others to lead the EU towards a new relationship with Britain – a close partnership which protects free trade, security and the other forms of cooperation which benefit all Europeans.

Henry Newman is the director of Open Europe. He tweets @henrynewman.

0800 7318496