HOUSING bubbles have a lot to answer for. The bursting of the US ‘subprime’ bubble in 2007-2008 triggered financial panic. Soaring house prices have been blamed for widening inequality. A new paper adds another item to the charge sheet: a housing boom might stop your kids going to university.
By L.T.
HOUSING bubbles have a lot to answer for. The bursting of the US ‘subprime’ bubble in 2007-2008 triggered financial panic. Soaring house prices have been blamed for widening inequality. A new paper, from researchers at Chicago and Northwestern universities, adds another item to the charge sheet: a housing boom might stop your kids going to university.
At first glance, this seems surprising. For homeowning families, rising house prices should enable them to borrow more against the value of their house, helping to pay fees for university-going offspring. But tuition is not the only cost of further study. Those extra years in the library (or the bar) is time that could have been spent in a job. When they can get a decent wage without going to university, some young people will choose work over lectures.
The authors argue that this is exactly the choice that many young Americans made in the early noughties. A housing boom pushed up wages in related industries, like construction and real estate. Wages may also have increased in low-skilled retail and service jobs, as upbeat homeowners spent their newfound wealth. At the same time, the growth in university attendance slowed. By 2006, the proportion of young people who had spent some time in higher education was four percentage points below where it would have been had earlier trends continued.
How much of this slowdown can be attributed to the housing boom? The authors look for cities where there was a sudden leap in house prices, suggesting a speculative bubble. They find that university enrolment slowed most dramatically in places with the biggest housing booms. Nationally, this explains almost a third of the slowdown in attendance, or 400,000 fewer young people in higher education. The courses that have been most affected are associate degrees—two-year programmes taught in community and technical colleges. Students on these courses are less academic, and presumably more tempted by the alternative of a job.
All this holds back the skill-level of the workforce, and may contribute to slow productivity growth. It also hurts young people in the long-run. The building sites are quieter now, but those who spurned university aren’t rushing back to their textbooks. Instead, they risk permanently lower wages as opportunities for non-graduates dry up. Higher education remains a good investment – its value has been increasing across the rich world for decades – but for some it now seems too late. We don’t need no education, they said. But when your future rests on houses, you’re just another brick in the wall.
