IDEAS home Printed from https://ideas.repec.org/a/wly/soecon/v88y2021i1p295-321.html
   My bibliography  Save this article

Income inequality and housing prices in the very long‐run

Author

Listed:
  • Abebe Hailemariam
  • Sefa Awaworyi Churchill
  • Russell Smyth
  • Kingsley Tetteh Baako

Abstract

We examine the relationship between income inequality and house prices for a panel of 17 OECD countries over the period 1870 to 2015. Our identification strategy takes advantage of exogenous variation in culturally weighted communist influence to instrument for within‐country variations in income inequality. Controlling for endogeneity, time, and country fixed effects, our results suggest that an increase in income inequality has a significant negative effect on real house prices. This finding is robust to the use of both the Gini coefficient and top income share as measures of income inequality and the use of absolute and relative income inequality measures, as well as a range of other robustness checks. We examine crime as a mechanism through which income inequality influences housing prices and find that the theft rate is a channel via which higher income inequality contributes to lower house prices.

Suggested Citation

  • 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.
    • Handle: RePEc:wly:soecon:v:88:y:2021:i:1:p:295-321
    DOI: 10.1002/soej.12520
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/soej.12520
    Download Restriction: no
    File URL: https://libkey.io/10.1002/soej.12520?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
    2. Klaus Adam & Pei Kuang & Albert Marcet, 2012. "House Price Booms and the Current Account," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 77-122.
    3. Gustavsson, Magnus & Jordahl, Henrik, 2008. "Inequality and trust in Sweden: Some inequalities are more harmful than others," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 348-365, February.
    4. Katharina Knoll & Moritz Schularick & Thomas Steger, 2017. "No Price Like Home: Global House Prices, 1870-2012," American Economic Review, American Economic Association, vol. 107(2), pages 331-353, February.
    5. Sefa Awaworyi Churchill & Lisa Farrell & Russell Smyth, 2019. "Neighbourhood ethnic diversity and mental health in Australia," Health Economics, John Wiley & Sons, Ltd., vol. 28(9), pages 1075-1087, September.
    6. Panizza, Ugo, 2002. "Income Inequality and Economic Growth: Evidence from American Data," Journal of Economic Growth, Springer, vol. 7(1), pages 25-41, March.
    7. El Herradi, Mehdi & Leroy, Aurélien, 2020. "Do rising top incomes fuel credit expansion?," Economics Letters, Elsevier, vol. 196(C).
    8. Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2017. "Macrofinancial History and the New Business Cycle Facts," NBER Macroeconomics Annual, University of Chicago Press, vol. 31(1), pages 213-263.
    9. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
    10. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 3-71, March.
    11. Morris A. Davis, 2010. "housing and the business cycle," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    12. Facundo Alvaredo & Lucas Chancel & Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2017. "Global Inequality Dynamics: New Findings from WID.world," American Economic Review, American Economic Association, vol. 107(5), pages 404-409, May.
    13. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(3), pages 597-625, June.
    14. Òscar Jordà & Katharina Knoll & Dmitry Kuvshinov & Moritz Schularick & Alan M Taylor, 2019. "The Rate of Return on Everything, 1870–2015," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(3), pages 1225-1298.
    15. Allen Lynch & David Rasmussen, 2001. "Measuring the impact of crime on house prices," Applied Economics, Taylor & Francis Journals, vol. 33(15), pages 1981-1989.
    16. Campbell, John Y. & Cocco, Joao F., 2007. "How do house prices affect consumption? Evidence from micro data," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 591-621, April.
    17. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    18. Giorgio Canarella & Luis Gil-Alana & Rangan Gupta & Stephen M Miller, 2021. "Persistence and cyclical dynamics of US and UK house prices: Evidence from over 150 years of data," Urban Studies, Urban Studies Journal Limited, vol. 58(1), pages 53-72, January.
    19. Alberto Alesina & Ekaterina Zhuravskaya, 2011. "Segregation and the Quality of Government in a Cross Section of Countries," American Economic Review, American Economic Association, vol. 101(5), pages 1872-1911, August.
    20. Thomas Piketty & Gabriel Zucman, 2014. "Capital is Back: Wealth-Income Ratios in Rich Countries 1700–2010," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1255-1310.
    21. A. B Atkinson & Andrew Leigh, 2013. "The Distribution of Top Incomes in Five Anglo-Saxon Countries Over the Long Run," The Economic Record, The Economic Society of Australia, vol. 89, pages 31-47, June.
    22. Deborah A. Cobb‐Clark & Vincent A. Hildebrand, 2006. "The Wealth And Asset Holdings Of U.S.‐Born And Foreign‐Born Households: Evidence From Sipp Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 52(1), pages 17-42, March.
    23. Emily Oster, 2019. "Unobservable Selection and Coefficient Stability: Theory and Evidence," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(2), pages 187-204, April.
    24. Green, Andy & Janmaat, Germ & Cheng, Helen, 2011. "Social Cohesion: Converging and Diverging Trends," National Institute Economic Review, National Institute of Economic and Social Research, vol. 215, pages 6-22, January.
    25. Hossein Hassani & Mohammad Reza Yeganegi & Rangan Gupta, 2019. "Does inequality really matter in forecasting real housing returns of the United Kingdom?," International Economics, CEPII research center, issue 159, pages 18-25.
    26. Zhang, Chuanchuan, 2015. "Income inequality and access to housing: Evidence from China," China Economic Review, Elsevier, vol. 36(C), pages 261-271.
    27. Nils Braakmann, 2017. "The link between crime risk and property prices in England and Wales: Evidence from street-level data," Urban Studies, Urban Studies Journal Limited, vol. 54(8), pages 1990-2007, June.
    28. A. B. Atkinson, 2003. "Income Inequality in OECD Countries: Data and Explanations," CESifo Economic Studies, CESifo Group, vol. 49(4), pages 479-513.
    29. Abebe Hailemariam & Ratbek Dzhumashev & Muhammad Shahbaz, 2020. "Carbon emissions, income inequality and economic development," Empirical Economics, Springer, vol. 59(3), pages 1139-1159, September.
    30. Alberto Chong & Mark Gradstein, 2007. "Inequality and Institutions," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 454-465, August.
    31. Steve Gibbons, 2004. "The Costs of Urban Property Crime," Economic Journal, Royal Economic Society, vol. 114(499), pages 441-463, November.
    32. Määttänen, Niku & Terviö, Marko, 2014. "Income distribution and housing prices: An assignment model approach," Journal of Economic Theory, Elsevier, vol. 151(C), pages 381-410.
    33. Miguel Niño‐Zarazúa & Laurence Roope & Finn Tarp, 2017. "Global Inequality: Relatively Lower, Absolutely Higher," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(4), pages 661-684, December.
    34. Harrison, Elizabeth & Seidl, Christian, 1994. "Perceptional Inequality and Preferential Judgements: An Empirical Examination of Distributional Axioms," Public Choice, Springer, vol. 79(1-2), pages 61-81, April.
    35. David McIlhatton & William McGreal & Paloma Taltavul de la Paz & Alastair Adair, 2016. "Impact of crime on spatial analysis of house prices: evidence from a UK city," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 9(4), pages 627-647, October.
    36. Bandyopadhyay, Sanghamitra, 2018. "The absolute Gini is a more reliable measure of inequality for time dependent analyses (compared with the relative Gini)," Economics Letters, Elsevier, vol. 162(C), pages 135-139.
    37. Chudik, Alexander & Pesaran, M. Hashem, 2015. "Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors," Journal of Econometrics, Elsevier, vol. 188(2), pages 393-420.
    38. Robert Halvorsen & Henry O. Pollakowski, 1981. "The Effects of Fuel Prices on House Prices," Urban Studies, Urban Studies Journal Limited, vol. 18(2), pages 205-211, June.
    39. Melek Cigdem‐Bayram & David Prentice, 2019. "How Do Crime Rates Affect Property Prices?," The Economic Record, The Economic Society of Australia, vol. 95(S1), pages 30-38, June.
    40. Victoria Reyes-García & Arild Angelsen & Gerald E. Shively & Dmitrij Minkin, 2019. "Does Income Inequality Influence Subjective Wellbeing? Evidence from 21 Developing Countries," Journal of Happiness Studies, Springer, vol. 20(4), pages 1197-1215, April.
    41. Ralph B. Taylor, 1995. "The Impact of Crime on Communities," The ANNALS of the American Academy of Political and Social Science, , vol. 539(1), pages 28-45, May.
    42. Homburg, Stefan, 1993. "An Analysis of the German Tenant Protection Law," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 149(2), pages 464-474.
    43. Zhang, Chuanchuan & Jia, Shen & Yang, Rudai, 2016. "Housing affordability and housing vacancy in China: The role of income inequality," Journal of Housing Economics, Elsevier, vol. 33(C), pages 4-14.
    44. Thomas Goda & Alejandro Torres García, 2017. "The Rising Tide of Absolute Global Income Inequality During 1850–2010: Is It Driven by Inequality Within or Between Countries?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 130(3), pages 1051-1072, February.
    45. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2005. "An Evaluation of Instrumental Variable Strategies for Estimating the Effects of Catholic Schooling," Journal of Human Resources, University of Wisconsin Press, vol. 40(4), pages 791-821.
    46. Brush, Jesse, 2007. "Does income inequality lead to more crime? A comparison of cross-sectional and time-series analyses of United States counties," Economics Letters, Elsevier, vol. 96(2), pages 264-268, August.
    47. Richard Arnott, 1995. "Time for Revisionism on Rent Control?," Journal of Economic Perspectives, American Economic Association, vol. 9(1), pages 99-120, Winter.
    48. Choe, Jongmook, 2008. "Income inequality and crime in the United States," Economics Letters, Elsevier, vol. 101(1), pages 31-33, October.
    49. 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.
    50. Mehlum, Halvor & Moene, Karl & Torvik, Ragnar, 2005. "Crime induced poverty traps," Journal of Development Economics, Elsevier, vol. 77(2), pages 325-340, August.
    51. Stefani, Alessia De, 2020. "Debt, inequality and house prices: Explaining the dynamics of household borrowing prior to the great recession," Journal of Housing Economics, Elsevier, vol. 47(C).
    52. Pasquale Tridico, 2018. "The determinants of income inequality in OECD countries [Political partisanship and welfare state reform in advanced industrial societies]," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(4), pages 1009-1042.
    53. repec:idb:brikps:39798 is not listed on IDEAS
    54. Thomas Piketty, 2003. "Income Inequality in France, 1901-1998," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1004-1042, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Abebe HAILEMARIAM, 2024. "Income and differential fertility: evidence from oil price shocks," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 90(1), pages 31-54, March.
    2. Chen, Fanglin & Chen, Zhongfei, 2023. "High-speed rail and happiness," Transportation Research Part A: Policy and Practice, Elsevier, vol. 170(C).
    3. 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.
    4. Awaworyi Churchill, Sefa & Smyth, Russell, 2022. "Protestantism and energy poverty," Energy Economics, Elsevier, vol. 111(C).
    5. Awaworyi Churchill, Sefa & Smyth, Russell, 2022. "Local area crime and energy poverty," Energy Economics, Elsevier, vol. 114(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Piazzesi, M. & Schneider, M., 2016. "Housing and Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1547-1640, Elsevier.
    2. Riccardo Novaro & Massimiliano Piacenza & Gilberto Turati, 2022. "Does money laundering inflate residential house prices? Evidence from the Italian provincial markets," Kyklos, Wiley Blackwell, vol. 75(4), pages 672-691, November.
    3. Mehdi el Herradi & Jakob de Haan & Aurélien Leroy, 2020. "Inflation and the Income Share of the Rich: Evidence for 12 OECD Countries," CESifo Working Paper Series 8203, CESifo.
    4. Thilo N. H. Albers & Charlotte Bartels & Moritz Schularick, 2020. "The Distribution of Wealth in Germany, 1895-2018," ECONtribute Policy Brief Series 001, University of Bonn and University of Cologne, Germany.
    5. Grossmann, Volker & Larin, Benjamin & Löfflad, Hans Torben & Steger, Thomas, 2021. "Distributional consequences of surging housing rents," Journal of Economic Theory, Elsevier, vol. 196(C).
    6. Awaworyi Churchill, Sefa & Smyth, Russell, 2022. "Local area crime and energy poverty," Energy Economics, Elsevier, vol. 114(C).
    7. Awaworyi Churchill, Sefa & Smyth, Russell & Trinh, Trong-Anh & Yew, Siew Ling, 2022. "Local crime and fertility," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 312-331.
    8. Elias Oikarinen & Steven C. Bourassa & Martin Hoesli & Janne Engblom, 2017. "Revisiting the House Price-Income Relationship," LARES lares_2017_paper_26, Latin American Real Estate Society (LARES).
    9. Guerrieri, V. & Uhlig, H., 2016. "Housing and Credit Markets," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1427-1496, Elsevier.
    10. Abebe Hailemariam & Tutsirai Sakutukwa & Ratbek Dzhumashev, 2021. "Long-term determinants of income inequality: evidence from panel data over 1870–2016," Empirical Economics, Springer, vol. 61(4), pages 1935-1958, October.
    11. Hodelin, Reynaldo Senra, 2022. "Statistical disclosure and economic growth: What is the nexus?," World Development, Elsevier, vol. 160(C).
    12. Greg Howard & Jack Liebersohn, 2023. "Regional Divergence and House Prices," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 49, pages 312-350, July.
    13. Konstantin A. Kholodilin & Sebastian Kohl, 2021. "Rent Price Control – Yet Another Great Equalizer of Economic Inequalities?: Evidence from a Century of Historical Data," Discussion Papers of DIW Berlin 1927, DIW Berlin, German Institute for Economic Research.
    14. Mert Akyuz & Ghislain Nono Gueye & Cagin Karul, 2022. "Long-run dynamics between trade liberalization and income inequality in the European Union: a second generation approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(3), pages 769-792, August.
    15. Mehdi El Herradi & Jakob Haan & Aurélien Leroy, 2023. "Inflation and the Income Share of the Rich: Evidence for 14 OECD Countries," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 69(1), pages 170-194, March.
    16. Bazillier, Rémi & Héricourt, Jérôme & Ligonnière, Samuel, 2021. "Structure of income inequality and household leverage: Cross-country causal evidence," European Economic Review, Elsevier, vol. 132(C).
    17. Anjan K. Saha & Vinod Mishra & Russell Smyth, 2021. "Financial development and top income shares in OECD countries," Southern Economic Journal, John Wiley & Sons, vol. 87(3), pages 952-978, January.
    18. Çetin, Murat & Sarıgül, Sevgi Sümerli & Işık, Cem & Avcı, Pınar & Ahmad, Munir & Alvarado, Rafael, 2023. "The impact of natural resources, economic growth, savings, and current account balance on financial sector development: Theory and empirical evidence," Resources Policy, Elsevier, vol. 81(C).
    19. Ioanna Konstantakopoulou, 2020. "Further Evidence on Import Demand Function and Income Inequality," Economies, MDPI, vol. 8(4), pages 1-12, October.
    20. Nikos Benos & Stelios Karagiannis, 2018. "Inequality And Growth In The United States: Why Physical And Human Capital Matter," Economic Inquiry, Western Economic Association International, vol. 56(1), pages 572-619, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:soecon:v:88:y:2021:i:1:p:295-321. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)2325-8012 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.