Lifetime Income and Housing Affordability in Singapore
AbstractThe existing measures of housing affordability are essentially short-run indicators that compare current income with property prices. Taking into consideration that a housing purchase is a long-horizon decision and the property price reflects the discounted present value of future mortgage payments, we develop a housing affordability index as the ratio of lifetime income to housing price. Lifetime income is computed by obtaining the predicted income from a regression over the working life from age 20 to 64 for each birth cohort for which limited data were available. Lifetime income of Singapore households by three income quantiles (lower, median, and upper quartiles) shed new light on the increasing income inequality. The affordability index reveals informative trends and cycles in housing affordability both in the public and private sectors. We argue why residential property price escalations need to be avoided by showing that such price increases do not necessarily create a net wealth effect for the aggregate of households.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Microeconomics Working Papers with number 22558.
Date of creation: Jan 2008
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lifetime income inequality; long-run housing affordability; wealth effect;
Other versions of this item:
- Tilak Abeysinghe & Jiaying Gu, 2011. "Lifetime Income and Housing Affordability in Singapore," Urban Studies, Urban Studies Journal Limited, vol. 48(9), pages 1875-1891, July.
- Tilak Abeysinghe & Jiaying Gu, 2008. "Lifetime Income and Housing Affordability in Singapore," SCAPE Policy Research Working Paper Series 0807, National University of Singapore, Department of Economics, SCAPE.
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
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