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 National University of Singapore, Department of Economics, SCAPE in its series SCAPE Policy Research Working Paper Series with number 0807.
Length: 24 pages
Date of creation: Jul 2008
Date of revision:
lifetime income inequality; long-run housing affordability; wealth effect; price 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," Microeconomics Working Papers 22558, East Asian Bureau of Economic Research.
- 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 - - - Intertemporal Household Choice; Life Cycle Models and Saving
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-11-18 (All new papers)
- NEP-SEA-2008-11-18 (South East Asia)
- NEP-URE-2008-11-18 (Urban & Real Estate Economics)
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