The Housing Market and Regional Commuting and Migration Choices
| Date | 01 September 1998 |
| Author | John Muellbauer,Gavin Cameron |
| DOI | http://doi.org/10.1111/1467-9485.00106 |
| Published date | 01 September 1998 |
II
NTRODUCTION
There has been much debate about the connection between housing tenure
structure and the relatively low level of labour mobility in the UK, see Hughes
and McCormick (1981, 1987 ), Minford et al. (1987) and McCormick (1997).
These authors have seen the small size of the private rented sector, partly the
result of controls on rents and security of tenure, and restrictions on the mobility
of council tenants as important sources of inefficiency in British labour
markets. The high degree of persistence in regional unemployment rates com-
pared with the US is one symptom of this inefficiency. If regional unemploy-
ment 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.
Bover et al. (1989) and Muellbauer and Murphy (1991) suggested that the
owner-occupied housing market was more intimately 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.1
The most obvious mechanism for this negative effect of house 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 f urther 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.
Typically, house price to income ratios in London and the rest of the South
East exceed those in other regions. Mortgage lenders apply ceilings both on
loan-to-value and loan-to-income ratios in allocating mortgage loans. Thus,
first-time buyers in the South East or considering a move to the South East will
be more likely to be constrained by loan-to-income ceilings and more likely to
face cash flow problems if mortgage interest rates rise. When house prices have
420
Scottish Journal of Political Economy, Vol. 45, No. 4, September 1998
© Scottish Economic Society 1998. Published by Blackwell Publishers Ltd, 108 Cowley Road, Oxf ord OX4 1JF, UK and
350 Main Street, Malden, MA 02148, USA
THE HOUSING MARKET AND REGIONAL
COMMUTING AND MIGRATION CHOICES
Gavin Cameron and John Muellbauer*
*Nuffield College, Oxford
1See Zabalza (1978) , Harrigan, Jenkins and McGregor (1986 ), Mitchell (1989), Jackman
and Savouri (1992a, 1992b ), Gabriel et al. (1992), Kingsley and Turner (1993), Potepan
(1994), Kiel (1994), Johnes and Hyclak (1994 ).
risen more strongly in the South East, owner-occupiers in other regions have to
borrow relatively more to move to the South East. In contrast, South East
residents have an equity cushion which they can use to reduce borrowing or
spend on more luxurious housing by moving to other regions.
If one takes a narrow view of the determinants of house prices, i.e., regards
them as largely determined by local labour and product market conditions, one
might be justified in omitting relative house price effects in migration equations.
However, the anomalous or weak earnings and unemployment effects found in
such migration equations, see McCormick (1991 ), are prima facie evidence
against this. The narrow view neglects the supply side, for example the greater
restrictions on expanding housing supply in London and the South East, and
even more importantly the wealth effects, interest rate effects and speculative
portfolio investment effects in the determination of UK house prices docu-
mented in Muellbauer and Murphy (1997).
In the 1980s house price boom, increased portfolio demand for housing
crowded out part of the demand by employees f or living space. This is mostly
clearly seen in the South East, which by 1987 –8 was showing symptoms o f
speculative frenzy. Thus, in 1987– 89 when relative unemployment rates in the
South East had fallen sharply and relative earnings had experienced strong rises,
net regional in-migration into the South East reached record lows of −55,000
individuals per annum despite the labour market pressures for higher in-
migration. This is an important practical example of the regional labour market
inefficiency discussed above. Moreover, this episode added considerably to
inflationary pressure as argued in Bover et al. (1989 ) and documented in
institutional detail by Walsh and Brown (1991).
A frequently made point is that regional commuting can help to overcome the
blockages the housing market can put in the way of an efficient regional
allocation of labour and jobs. For example, one expects the 1987– 89 period to
be one where net commuting to the South East increased to offset the housing
market constraints. More generally, reflecting the commuting/migrating trade-
off, one should expect the housing market variables such as relative house
prices, to have the opposite effect on net regional commuting compared with net
regional migration. In contrast, the effects of relative earnings and employment
opportunities should be in the same direction for both net commuting and net
migration.
Gordon (1975) , Molho (1982 ) and Jackman and Savouri (1992a) have
pointed out a further implication of the commuting/migrating trade-off on the
determinants of migration. This results f rom the fact that fixed costs are much
greater for migrating, while commuting costs strongly increase with distance.2
Thus the trade-off operates more powerfully for contiguous region migration
than non-contiguous region migration. If relatively cheap commuting is an
alternative, the location decision will be more strongly influenced by relative
housing market variables. It will be less strongly influenced by relative labour
© Scottish Economic Society 1998
2Indeed, taking the utility loss of reduced leisure into account , they increase dispropor-
tionately with commuting times and so distance.
HOUSING MARKET, REGIONAL COMMUTING AND MIGRATION 421
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