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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

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 Taiwan

Accumulated results of individual household’s housing tenure choice.


Benefits of homeownership
Benefits of Homeownership Taiwan

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 Taiwan

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 Taiwan

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 Taiwan

67.5%

+4.1%

63.4%


Case shiller house price index 1987 2009
Case & Shiller House Price Index-1987~2009 Taiwan

189.93

132.64

+206.2%

62.03

-30.16%


House price and homeownership rate
House Price and Homeownership Rate Taiwan

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 Taiwan

Positive or Negative?


Painter and redfearn 2002
Painter and Redfearn(2002) Taiwan

  • 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.



Ownership rates in taiwan and usa 1976 2008
Ownership Rates in Taiwan and USA-1976~2008 Taiwan

87.4%

+20%

+2.7%

67.4%

67.5%

64.8%






Research questions
Research Questions Taiwan

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 Taiwan

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- TaiwanMarket 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- TaiwanInstitution 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 TaiwanChoice- 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 ) Taiwan

  • 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 Taiwan

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 Taiwan

  • 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


Panel Unit Root Test Taiwan

IPS

ADF-Fisher


Results of panel unit root test
Results of Panel Unit Root Test Taiwan

  • 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).


own and Taiwanmar 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 Taiwan without trend

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

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


own and Taiwanmar 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 Taiwan with trend

  • All variables have cointegration relationships with homeownership rates.

  • A trend in homeownership rate serial.






Fmols panel
FMOLS_ Panel Taiwan


Results of fmols
Results of FMOLS Taiwan

  • 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 Taiwan

  • 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 Taiwan

  • 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 Taiwan

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



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