Determinants of long run homeownership rates evidence from taiwan
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Determinants of Long-Run Homeownership Rates: Evidence from Taiwan. CHIEN-WEN PENG NATIONAL TAIPEI UNIVERSITY I-CHUN TSAI NATIONAL UNIVERSITY OF KAOHSIUNG STEVEN BOURASSA UNIVERSITY OF LOUISVILLE 06/25/ 2010. Homeownership Rate.

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Determinants of Long-Run Homeownership Rates: Evidence from Taiwan

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Determinants of long run homeownership rates evidence from taiwan

Determinants of Long-Run Homeownership Rates: Evidence from Taiwan

CHIEN-WEN PENG

NATIONAL TAIPEI UNIVERSITY

I-CHUN TSAI

NATIONAL UNIVERSITY OF KAOHSIUNG

STEVEN BOURASSA

UNIVERSITY OF LOUISVILLE

06/25/ 2010


Homeownership rate

Homeownership Rate

Accumulated results of individual household’s housing tenure choice.


Benefits of homeownership

Benefits of Homeownership

Positive impacts on people’s behavior, especially during the childhood. (Green and White 1997; Haurin et al. 2002; Lien et al. 2008)  higher test scores

Increase people’s attachment to their property and community, which tends to have stabilizing effect on society. (Rossi and Weber 1996; Dipasquale and Glaeser 1999) better neighbor, better citizen


Policies to promote homeownership rate

Policies to Promote Homeownership Rate

Supply Side SubsidyAffordable Public Housing

Demand Side Subsidy

 Preferential Interest Mortgage

 Mortgage Interest Deduction from Income Tax

 Lower Property Tax Rate

 Lower down payment Required (Higher LTV)


Costs of homeownership

Costs of Homeownership

Obscure costs with respect to

Limited economic resource allocation

Economic development

Housing market operation


Homeownership rates in us 1965 2008

Homeownership Rates in US-1965~2008

67.5%

+4.1%

63.4%


Case shiller house price index 1987 2009

Case & Shiller House Price Index-1987~2009

189.93

132.64

+206.2%

62.03

-30.16%


House price and homeownership rate

House Price and Homeownership Rate

House Price

 Relative Cost of Owning vs. Renting

 House Price Affordability (wealth and income constrains)

House price ↑User Cost of Owning ↑

Affordability ↓

Ownership Rate ↓

Exp. House Price Appreciation↑ Ownership Rate↑


Homeownership rates and house price in us

Homeownership Rates and House Price in US

Positive or Negative?


Painter and redfearn 2002

Painter and Redfearn(2002)

  • Interest rates had an influence on both housing supply and timing of changes of tenure status from renter to owner, the long-term homeownership rate appears independent of interest rates.

  • To promote homeownership rates, low down payment and improved technology for assessment of credit risk may be more effective.


Homeownership rates in taiwan 1976 2008

Homeownership Rates in Taiwan:1976~2008

87.4%

+20%

67.4%


Ownership rates in taiwan and usa 1976 2008

Ownership Rates in Taiwan and USA-1976~2008

87.4%

+20%

+2.7%

67.4%

67.5%

64.8%


Ownership rates and house price of taipei city

Ownership Rates and House Price of Taipei City


Ownership rates and house price of taipei county

Ownership Rates and House Price of Taipei County


Ownership rates and house price of taichung city

Ownership Rates and House Price of Taichung City


Ownership rates and house price of kaohsiung city

Ownership Rates and House Price of Kaohsiung City


Research questions

Research Questions

Both of the patterns of long-run homeownership rates and house prices in US. and Taiwan are strange.

What are the determinants of long-run homeownership rates? (Does it implies Taiwan’s homeownership promotion policies are more effective than U.S.? )


Literature review

Literature Review

Abundant Literature on Determinants of Individual Household’s Tenure Choice

Some studies focus on Homeownership Rates Differences in different Nations /Regions

Rare on the Determinants of Long- run Homeownership Rates


Tenure choice market factors

Tenure Choice- Market Factors

  • Housing Price, HP Fluctuation Risk ↑ Rent

  • Borrowing Constrains (LTV↓, Interest Rate↑) ↑ Rent

  • Rent, Rent Fluctuation Risk ↑ Buy

  • Expected Housing Price Appreciation ↑Buy


Tenure choice institution factors

Tenure Choice-Institution Factors

  • Property Tax ↑ Rent

  • Relative Cost of Owning vs. Renting ↑ Rent

  • Deduction of Mortgage Interest from Income Tax↑ Buy

  • Owner-occupied Housing Subsidies↑ Buy


Tenure choice household s characteristics

Tenure Choice- Household’s Characteristics

  • Expected Mobility ↑ Rent

  • Household Income↑ Buy

  • Household Head’s Age↑, Married  Buy

  • Family Size ↑ Buy

  • Number of Dependent Children↑ Buy


Selected variables no institutional factors

Selected Variables (no institutional factors )

  • House Price (p)

  • Household Income (I)

  • House Price to Income Ratio (pI)

  • Rent Growth Rate (red)

  • House Price Growth Rate (pd)

  • Income Growth Rate (ld)

  • Household Growth (h)

  • Mobility Rates (mov)

  • Proportion of Married Couples (mar)

  • Proportion of Elderly People (old)


Empirical study

Empirical Study

Investigate the Determinants of Long-Run Homeownership Rates

Data: Taipei City, Taipei County, Taichung City, Kaohsiung City, 1980~2007,Sample Size 112

Methodology: Panel Co-integration


Panel co integration

Panel Co-integration

  • Cointegration is an econometric property of time series variables.

  • If two or more series are themselves non-stationary, but a linear combination of them is stationary, then the series are said to be cointegrated.

  • Panel Co-integration= Cross Section + Time Series  More Samples, More Information


Determinants of long run homeownership rates evidence from taiwan

Panel Unit Root Test

IPS

ADF-Fisher


Results of panel unit root test

Results of Panel Unit Root Test

  • Can not reject the null hypothesis of having a unit root for the levels of most variables, except house price appreciation rate (pd) and income growth rate (Id).

  • The differences of all variables are significantly to reject the null hypothesis which implies most variables are I(1).


Determinants of long run homeownership rates evidence from taiwan

own and mar mov old h(demographic)

own and I, p, pI (affordability)

own and red (consumption)

Model 1 without trend

Model 2 with trend

Panel Co-integration Test


Panel co integration test without trend

Panel Co-integration Test without trend

  • Long-run equilibrium relationship between own and I, mar, old, mov

  • No cointegration relationship between own and h, p, red


Determinants of long run homeownership rates evidence from taiwan

own and mar mov old h(demographic)

own and I, p, pI (affordability)

own and red (consumption)

Panel Co-integration Test -With Trend


Panel co integration test with trend

Panel Co-integration Test with trend

  • All variables have cointegration relationships with homeownership rates.

  • A trend in homeownership rate serial.


Fmols taipei city

FMOLS_ Taipei City


Fmols taipei county

FMOLS_ Taipei County


Fmols taichung city

FMOLS_ Taichung City


Fmols kaohsiung

FMOLS_ Kaohsiung


Fmols panel

FMOLS_ Panel


Results of fmols

Results of FMOLS

  • the most influential variables of own are different in the four cities.

  • Taipei City: old(+), mar(+), p(+)

  • Taipei County: old(+), mov(+), l(-), h(-)

  • Taichung City and Kaohsiung City: I (+)

  • In General, old, mar, p, I (+) , h (-)


Conclusions

Conclusions

  • A trend exists in Taiwan’s homeownership rates, not explainable by selected variables which may contributed to the influence of institutional factors.

  • If not consider the trend, long-run equilibrium relationships only between ownership rates and

  • household income

  • proportion share of married couples

  • Proportion of elderly people

  • mobility rates


Conclusions1

Conclusions

  • If consider the trend, can find co-integration between homeownership rates and house prices, household growth rate, rent growth rate.

  • From FMOLS,

  • the most influential variables of own are different in the four cities.

  • In general, proportion of elderly people, proportion of married couple, house price are most influential vars.


Policies implications

Policies Implications

Why there is a trend in Taiwan’s homeownership rates?

Possible explanation:

Low owning cost which due to low property tax and high expectation of house price appreciation, especially in Taipei City

effective property tax rate↑

better rental housing market


Determinants of long run homeownership rates evidence from taiwan

Thanks for your Attention


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