Housing and jobs

Recently, I heard this statement made by a jobseeker” I need a job, what does housing have to do with me getting a job?’ The short answer to that question is-a lot! In an economy such as ours everything is somewhat related to job demand and housing plays a crucial role.

To explain, there are three main ways in which housing demand affects job creation. The first is directly though the demand for individuals in the construction trade. In Volusia County, at its peak, 15,000 individuals or 6.1% of our workforce were employed in the housing industry. Today 8,100, that is 3.2% of our local economy is directly affected by housing. These numbers become even more staggering when we look to our sister county to the north. Flagler County’s slice of the housing pie at its peak was 2,400 or 8%, today it is 890 or 2.7%.

The second way that housing affects jobs is through a slightly more complex chain. This chain is based on the fact that a significant amount of our consumption is based on the value that is encased in our homes.

This value was utilized in a number of ways. The main method that we all read and hear about, but struggle to understand, is through financial engineering. This is when those values associated with our homes, or better yet the mortgages attached to the homes themselves were pooled, bundled, and then sold at a discount to investors nationwide and worldwide. These products were structured many different ways, but the main products involved selling slices of our mortgage payments called tranches to investors. These products were viewed as fairly safe investments and as a result they sold like hotcakes. This product in a nutshell is the Mortgage Backed Securities (MBS) also called CMOs (Collateralized Mortgage Obligations) or Mortgage Backed Certificates (MBC) that we have read some much about in the past 2-3 years. These financial products helped facilitate the rise in the perceived value of homes, drove paper profits, and fueled consumption and demand. Thus the demand for employment followed.

The third and no less important way is through value extraction of your home in the form of a loan to fuel your personal consumption. That personal consumption drives demand, which then drives the need for production of goods and services to meet this demand. This is the same drive that forces an employer to place an ad on EFM, Monster, Career Builder, or your local newspaper’s want ads to hire you the jobseeker.

As is obvious, both processes are prone to the opposite effect when the reverse occurs. This is what we had experienced in the past 2-3 years. This is not to say that an economy cannot grow and create jobs without this process occurring, but at this current time, the way our economy is structured, at the very least we will need to see some stabilization in the housing market before we would expect significant consistent improvement on the jobs front.