The housing market and regional commuting and migration choices

There has been much debate about the connection between housing tenure structure and the relatively low level of labour mobility in the UK. The small size of the private rented sector, partly the result of controls on recent and secruity of tenure, and restrictions on the mobility of council tenants are important sources of inefficiency in Britain labour markets. The high degree of persistence in regional unemployment rates compared with the US is one symptom of this inefficiency. If regional unemployment rates respond only weakly to demand shocks, regional labour mismatch is high which implies both a loss in output and greater vulnerability to inflationary pressures. The owner-occupied housing market was more initimately involved in accounting for these inefficiencies than had previously been thought. A body of econometric evidence has now built up to suggest that high relative earnings and employment opportunities encourage migration to a region while high relative house prices discourage it. The most obvious mechanism for this negative effect of housing prices on migration arises through cost of living differentials between regions. If earnings are not deflated by a regional cost of living index which appropriately incorporates housing costs, relative house prices will, in part, measure this omitted cost of living effect. However, there are likely to be further effects connected with constraints on credit availability and the risks associated with a high level of indebtedness both relative to income and to housing equity.