Homeownership and the New Zealand Labour Market

Abstract

Since the early 1990s, the proportion of the New Zealand households living in owner-occupied dwellings has declined markedly from 73.8 per cent in 1991 to 66.9 per cent in 2006. Over the same period there has been a decline in the unemployment rate from 10.5 per cent to 3.5 per cent. Several demand, supply and institutional factors are responsible for the downward trend in unemployment, but this paper investigates a possible connection with homeownership that has hitherto not been investigated in New Zealand. Andrew Oswald argued in a series of unpublished papers in the 1990s that home ownership is detrimental to labour market flexibility because of transaction costs that homeowners must incur when a job change necessitates a change of residence. An extensive theoretical and empirical literature on this hypothesis has emerged internationally. The present paper reviews earlier findings and then rests the hypothesis with 1986, 1991, 1996 and 2001 census data for 58 labour market areas, using econometric models for panel data. We take account of the erogeneity of homeownership. The New Zealand models do provide evidence that supports the Oswald hypothesis.