Have Home, Won’t Travel: How Housing Values Impact Labor Mobility

The terms “economic mobility” and “social mobility” are used figuratively to describe ascending the wealth ladder, usually by accruing income. But such mobility can take on a more literal connotation: if a better paying job is across the country it might be worth moving. Anything that restricts a person’s ability to move to a new area inherently limits the employment opportunities available to them, forcing them to either stay in a lower paying job or commute farther for better pay.

In their paper “Housing Equity, Residential Mobility, and Commuting,” Gintautus Bloze and Morten Skak examine to what extent restricted mobility impacts economic growth by studying the relationship between reductions in housing values, residential mobility, and commutes by homeowners in Denmark. The researchers found that homeowners who are unable to pay off their mortgage by selling their home are significantly less likely to move for a new job than those who can, but are no more likely to have a significant commute. Their results indicate that the relationship between housing values and labor mobility is more complex than initially hypothesized.

It is more expensive and time-consuming for a homeowner to move compared to a renter, but these costs are generally offset by a house’s potential investment value and the fact that homeownership in Denmark improves the probability of finding a local job. This indicates that homeownership may incentivize finding and staying in a local job, even at the expense of a higher paying position at a non-local firm. While residential real estate was a stable and growing market between 1993 and 2007, the global real estate bubble caused housing values in Denmark to drop. With the sudden rise in the number of Danish homeowners whose property was not valuable enough to pay off their mortgage, the researchers looked into whether this trend further disincentivized homeowners to relocate for a job, or whether it led to increased commuting for homeowners who could not sell their property.

Since home loans in Denmark typically account for 80 percent of the value of the home, if the Loan-to-Value (LTV) ratio of the home rises above .8 it is no longer possible for the homeowner to pay off the mortgage by selling their property. Not surprisingly, Bloze and Skak found that the odds of a homeowner relocating are 52 percent lower when their LTV ratio falls between .8-1 compared to those whose houses are still valuable enough to pay off their mortgage.

Bloze and Skak next sought to determine if homeowners with high LTV ratios were more likely to commute to work, rather than work locally. Employees have a preference for working locally, and while 43 percent of Danish homeowners’ commute, only 28 percent of renters do as they are better able to relocate for a job than homeowners. Bloze and Skak hypothesized that homeowners with high LTV ratios would commute at greater rates than those with low LTV ratios, due to their inability to relocate for a job, but their data indicates that there is no significant difference in commuting rates between these two groups. However, the data does reveal that, when given the choice between moving or commuting, 60 percent of homeowners with high LTV ratios chose to commute, while less than 6 percent chose to move.

The reasons influencing a homeowner to move are varied and complex, ranging from job opportunities, to family size, to other economic and seasonal factors. It is clear, however, that a drop in housing values has ramifications on markets beyond real estate. While their research provides few answers, it clarifies the understanding that a flexible labor market allows workers the ability to relocate for a new job, encouraging economic mobility and enhancing economic productivity.

Article source: Bloze, Gintautus and Marten Skak. “Housing Equity, Residential Mobility, and Commuting.” Journal of Urban Economics (2016). 

Featured photo: cc/(3dan3, photo ID: 159406920, from iStock by Getty Images)