Friday, January 9, 2009

Historical Context of Homeownership...and Some Consequences?

This post relates to the following Keystone Economic Principles:
1. We all make choices.
3. All choices have consequences.
4. Economic systems influence choices.
5. Incentives produce “predictable” responses.

The Federal Reserve Bank of Richmond's Region Focus magazine raises an interesting question in the most recent issue. "Are there economic consequences to promoting homeownership?" The article, House Bias, looks at the history of homeownership in the U.S. and the policy decisions that led to its growth. While many of us would agree that there are significant benefits to home ownership, there are some interesting costs raised by research. The article can provide some interesting fodder for discussion in both personal finance and economics courses.

One that particularly struck me arose from cited research linking homeownership to the unemployment rate. It seems that increased levels of home ownership can be correlated to higher rates of unemployment. The finding connects with one of the special characteristics of labor as a productive resource that some of us learned in our early economics courses - immobility. The idea is that people are not as mobile as other productive resources - largely because they lack the willingness to get up and move easily, whether for economic or other reasons. Given that connection, are there advantages to renting instead of owning a home, and should that be a consideration in and individual's lifestyle? It would seem sensible that someone who wants to be free to follow job opportunities might be better served renting than owning.

Give this short article (four pages) a quick read and share your thoughts and observations.

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