eThesis - School of Business electronic theses

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Homeownership has been empirically found to incentivize childless people to vote for school bonds that improve education (Sonstelie and Portney, 1980; Harris et al., 2001), be more involved and watchful individuals in their home region (Davis and Hayes, 1993; DiPasquale and Glaeser, 1999), participate more frequently in regional affairs and homeowners' children tend to grow up to become more successful than renters' (Green and White, 1997; Haurin et al (2002)). However, Oswald (1996, 1997, 1999) and many others after him have proposed that homeownership might impair the labor market by decreasing homeowners' labor mobility or through some other channel. One of the channels suggested is exclusionary zoning, which hampers regional development in an area where the dominant housing tenure is homeownership.

This Master's thesis addresses the relationship between housing tenure and unemployment first by a literature review of existing theoretical and empirical papers. After the literature review, this thesis continues to empirically address a model proposed by the authors of one of the most recent articles on the topic (Blanchflower & Oswald, 2013) that describes the relationship between regional unemployment and past homeownership rates.

For the empirical analysis, we construct a model to examine the relationship between regional unemployment rates and lagged homeownership rates while controlling for demographical factors and factors describing the regional labor and housing markets. The results for Finnish municipalities are quite similar to the ones obtained by Blanchflower and Oswald (2013) for US states. While regional unemployment rate is very dependent on its past values, it is also dependent on the past homeownership rates with long run elasticity ranging from 0.9 to 1.6. This suggests that there exists a strong relationship between labor market and housing market with the effect of high homeownership resulting in later high unemployment rates. The possible factors creating the relationship derived from the existing literature include externalities (i.e. exclusionary zoning, decreased consumption due to mortgage payments) and decreased labor mobility due to homeownership. The exact reason for the existence of the relationship still remains unclear and further research on the topic is necessary.