Lifetime Income and Housing Affordability in Singapore

Tilak Abeysinghe () and Jiaying Gu
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Jiaying Gu: Department of Economics, National University of Singapore

SCAPE Policy Research Working Paper Series from National University of Singapore, Department of Economics, SCAPE

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

Keywords: lifetime income inequality; long-run housing affordability; wealth effect; price effect (search for similar items in EconPapers)
JEL-codes: R21 D31 D91 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-sea and nep-ure
Date: 2008-07

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Persistent link: http://EconPapers.repec.org/RePEc:sca:scaewp:0807

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