Thursday, March 27, 2008

Housing Bubble: (maybe?) bad for tax revnues, pollution, and employment

My friend Jenny asks how housing markets impact other aspects of other society. I have been reluctant to way into discussion of the housing crisis situation, since I don’t know a lot about it. But here are a few random thoughts.

First, as Jenny points out in her request local taxes and sometimes state taxes are tied to housing prices. Since taxes are usually put on the value of the house, if house prices go down so does revenue. This article in the Sacramento Bee, suggests that in California where only local areas collect property taxes the decline in the housing market will hurt revenues.

What other avenues are there? This is purely theoretical, but one problem with the current housing market is that people might be less willing to move if they have to sell their home at a loss. At the same time gas prices are going up. The increase in gas prices, which seems to be more permanent than temporary should encourage people to move closer to their jobs, but this may be prevented if people cannot sell their home. So the credit crunch could be increasing pollution if it prevents response to gas prices.

More importantly as Tim Harford, the undercover economist, explains in a slate article, home ownership can lead to more unemployment. He makes this assment based on an

"An English economist Andrew Oswald has shown that across European countries, and across U.S. states, high levels of home ownership are correlated with high levels of unemployment.”

In short the theory goes, people with houses can’t move to where the jobs are as easly. Similarly I would assume that people who can’t afford to sell their house, can’t move to where the good jobs are.. possibly increasing the recession.

I don’t know enough to say if a bailout is a good idea or not, but there are some possible other fallout from the housing market.

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