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Affordable homeownership policy : implications for housing markets

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  • Sock-Yong Phang

    (Singapore Management University)

Abstract

Affordable homeownership is a policy that is often accorded a great deal of policy attention by governments of many countries. In this paper, we examine the market implications of setting a housing price to income ratio target for a market segment by the government. The policy requires active intervention by the government with regard to the targeted sector. We use a simple model of the housing market with a homeownership affordability target to derive the market implications of such targets. In the presence of uncertainty and resource constraints, the objective of homeownership affordability is achieved for the targeted group at the expense of greater volatility in residential construction activity. When the size of the targeted sector is significant in size, there are spillover price and crowding out effects on the non-targeted housing market segment. This results in political pressure on the government to expand homeownership affordability targets to increasing segments of the population. Housing price to income ratios tend to be fairly constant over time and across targeted groups, the housing supply is relatively price inelastic and the income elasticity of housing demand is less than one. The Singapore government intervenes extensively in the housing sector to ensure homeownership affordability, with a resulting homeownership rate of 91 percent for the resident population. The above hypotheses regarding the implications of setting housing price to income ratio targets are tested using the Singapore housing market. The experience and data for Singapore were found to support the above hypotheses.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Microeconomics Working Papers with number 23052.

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Date of creation: Jan 2009
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Handle: RePEc:eab:microe:23052

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Keywords: Affordable homeownership policy; market implications; Singapore;

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  1. Sinai, Todd & Waldfogel, Joel, 2005. "Do low-income housing subsidies increase the occupied housing stock?," Journal of Public Economics, Elsevier, Elsevier, vol. 89(11-12), pages 2137-2164, December.
  2. Murray, Michael P, 1999. "Subsidized and Unsubsidized Housing Stocks 1935 to 1987: Crowding Out and Cointegration," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 18(1), pages 107-24, January.
  3. DiPasquale, Denise & Glaeser, Edward L., 1999. "Incentives and Social Capital: Are Homeowners Better Citizens?," Journal of Urban Economics, Elsevier, Elsevier, vol. 45(2), pages 354-384, March.
  4. John Harding & Thomas J. Miceli & C.F. Sirmans, 2000. "Do Owners Take Better Care of Their Housing Than Renters?," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 28(4), pages 663-681.
  5. Chiuri, Maria Concetta & Jappelli, Tullio, 2003. "Financial market imperfections and home ownership: A comparative study," European Economic Review, Elsevier, Elsevier, vol. 47(5), pages 857-875, October.
  6. Mark Robinson & Grant M. Scobie & Brian Hallinan, 2006. "Affordability of Housing: Concepts, Measurement and Evidence," Treasury Working Paper Series, New Zealand Treasury 06/03, New Zealand Treasury.
  7. John M. Quigley & Steven Raphael, 2004. "Is Housing Unaffordable? Why Isn't It More Affordable?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 18(1), pages 191-214, Winter.
  8. John Krainer & Chishen Wei, 2004. "House prices and fundamental value," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue oct1.
  9. Edward L. Glaeser & Joseph Gyourko, 2003. "The impact of building restrictions on housing affordability," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Jun, pages 21-39.
  10. Yong Tu & Grace K.M. Wong, 2002. "Public Policies and Public Resale Housing Prices in Singapore," International Real Estate Review, Asian Real Estate Society, Asian Real Estate Society, vol. 5(1), pages 115-132.
  11. Matteo Iacoviello & Francois Ortalo-Magne, 2002. "Hedging Housing Risk in London," Boston College Working Papers in Economics, Boston College Department of Economics 539, Boston College Department of Economics.
  12. Amy S. Bogdon & Ayse Can, 1997. "Indicators of Local Housing Affordability: Comparative and Spatial Approaches," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 25(1), pages 43-80.
  13. Coulson, N Edward, 2002. "Regional and State Variation in Homeownership Rates; or If California's Home Prices Were As Low As Pennsylvania's Would Its Ownership Rate Be As High?," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 24(3), pages 261-76, May.
  14. Donald R. Haurin & Toby L. Parcel & R. Jean Haurin, 2002. "Does Homeownership Affect Child Outcomes?," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 30(4), pages 635-666.
  15. Nordvik, Viggo, 2006. "Selective housing policy in local housing markets and the supply of housing," Journal of Housing Economics, Elsevier, Elsevier, vol. 15(4), pages 279-292, December.
  16. Murray, Michael P, 1983. "Subsidized and Unsubsidized Housing Starts: 1961-1977," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 65(4), pages 590-97, November.
  17. Malpezzi, Stephen & Vandell, Kerry, 2002. "Does the low-income housing tax credit increase the supply of housing?," Journal of Housing Economics, Elsevier, Elsevier, vol. 11(4), pages 360-380, December.
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