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The housing market
in Britain is the object of massive government intervention, which
includes the protection of private sector tenancies, the subsidizing of
council house rents, the subsidy to owner-occupiers through mortgage tax
reliefs, and the system of planning restrictions on housing land. In
Discussion Paper No. 191, Paul Ashton, Michael Peel and
Research Fellow Patrick Minford attempt to measure the effects of
this intervention on labour mobility and unemployment. They analyse a
model of regional labour markets, in which labour markets are affected
by the nature of housing provision: mobility between regions is
obstructed by rent subsidies and controls, and this gives rise to
unemployment and wage differentials across regions. Because unemployment
benefits set a floor beneath the supply price of labour, they argue,
rising wage differentials cause an increase in the national unemployment
rate as well. Minford and his co- authors use UK data from 1963 to 1979
to estimate a model in which regional unemployment depends on an index
of housing mobility, national unemployment and other variables: the
index of housing mobility proves to be statistically significant in this
regression. The authors calculate that if all rent restrictions
had been abolished, the national unemployment rate would have been
reduced by about 1.8 percentage points in 1979.
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