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Lifetime Income and Housing Affordability in Singapore

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  • Tilak Abeysinghe

    (SCAPE)

  • Jiaying Gu

Abstract

The 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.

Suggested Citation

  • Tilak Abeysinghe & Jiaying Gu, 2008. "Lifetime Income and Housing Affordability in Singapore," Microeconomics Working Papers 22558, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:microe:22558
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    2. Tilak Abeysinghe, 2019. "Old-age dependency: is it really increasing in aging populations?," Applied Economics Letters, Taylor & Francis Journals, vol. 26(13), pages 1111-1117, July.

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    More about this item

    Keywords

    lifetime income inequality; long-run housing affordability; wealth effect;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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