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The impact of income distribution on house prices

Author

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  • M. Utku Ozmen
  • M. Koray Kalafatcilar
  • Erdal Yilmaz

Abstract

Housing market developments have been attracting a great deal of attention in Turkey. Concerns related to supply, particularly at the higher segment of the market, lead these discussions. In this respect, basic regression estimations indicate that over the post-2010 period, income elasticity of house price changes is negative, despite housing being a normal good. In order to reveal the underlying reason, we discuss the role of income distribution. Our empirical analyses suggest that the share of bottom (the top) income quintiles are positively (is negatively) correlated with house price changes. Given the current ample stock of houses, at the high-end of the market, a demand surge led by an increase in the income share of the top income quintile may not put pressure on house prices. In addition, the declining income share of bottom three income quintiles may lead to a reduction in their housing demand. Thus, policies directed to improving income equality might help mitigate the imbalances in the housing market.

Suggested Citation

  • M. Utku Ozmen & M. Koray Kalafatcilar & Erdal Yilmaz, 2019. "The impact of income distribution on house prices," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 19(2), pages 45-58.
    • Handle: RePEc:tcb:cebare:v:19:y:2019:i:2:p:45-58
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    File URL: https://www.sciencedirect.com/journal/central-bank-review/vol/19/issue/2
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    Citations

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    Cited by:

    1. Berisha, Edmond & Meszaros, John & Gupta, Rangan, 2023. "Income inequality and house prices across US states," The Quarterly Review of Economics and Finance, Elsevier, vol. 91(C), pages 192-197.
    2. Olga Miroshnichenko & Elena Iakovleva & Natalia Voronova, 2022. "Banking Sector Profitability: Does Household Income Matter?," Sustainability, MDPI, vol. 14(6), pages 1-19, March.
    3. Zhao, Qingbin & Li, Guoqiang & Gu, Xinhua & Lei, Chun Kwok, 2021. "Inequality hikes, saving surges, and housing bubbles," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 349-363.
    4. Abebe Hailemariam & Sefa Awaworyi Churchill & Russell Smyth & Kingsley Tetteh Baako, 2021. "Income inequality and housing prices in the very long‐run," Southern Economic Journal, John Wiley & Sons, vol. 88(1), pages 295-321, July.
    5. Marilena Mironiuc & Elena Ionașcu & Maria Carmen Huian & Alina Țaran, 2021. "Reflecting the Sustainability Dimensions on the Residential Real Estate Prices," Sustainability, MDPI, vol. 13(5), pages 1-28, March.

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