Housing Wealth Inequality Research Articles

Property tax and housing wealth inequality: Evidence from China

This paper empirically investigates the impact of the property tax on housing wealth inequality using the property tax pilot program in China as a quasi-natural experiment. Our findings uncover a significant decrease in the Gini coefficients of the housing wealth in the pilot cities. The main channels at work include evolutionary housing demand from home buyers and the convergence of housing prices for different sizes. Two typical tax-exemption scenarios, based on per capita housing area or total number of housing units, present significant differences in the magnitude of the policy effectiveness as well as the effective channels.

Wealth inequality and the distributional effects of maximum loan-to-value ratio policy

Macroprudential policy improves economic outcomes by reducing the likelihood and severity of financial crises. Yet, are there unintended long run consequences to the introduction of a macroprudential policy regime, and are they conditional on the level of wealth inequality? I answer these questions by looking at the effect of a reduction in the maximum loan-to-value (LTV) ratio on homeownership rates, house prices and housing wealth inequality across two economies with different initial wealth dispersion. I use a heterogeneous agent model in which households face an endogenous borrowing limit in the form of a collateral constraint. A reduction in the LTV limit tightens the borrowing constraint and changes the levels of wealth at which households rent or become constrained or unconstrained owners. The key finding of this paper is that initial conditions matter; a greater share of households is affected when wealth is distributed more equally. This larger impact on aggregate demand leads to a stronger fall in house prices and a larger rise in the share of constrained homeowners and housing wealth inequality. The effects are also non-linear in the LTV ratio, with progressively stronger effects at lower LTV ratios.

Heterogeneity, Differentiation Mechanisms and Social Effects of Urban Residential Space in China’s Large Cities: A Case Study of Wuhan

Different choices of living space for urban residents are concrete reflections of a social class divide. Emerging residential space differentiation is a critical issue in Chinese cities. This paper aims to explore the current situations and mechanisms of residential spatial differentiation, and reveal its social responses in Chinese cities. Taking Wuhan, the largest city in central China, as an example, this research divides the residential space based on social resource structures. It analyzes and compares spatial differentiation and influencing factors of different residential areas and houses with different prices in Wuhan by spatial differentiation indicators and geographic detector. The results show that residential areas are divergent due to differences in urban resource spatial structure, with few and concentrated high-quality residential areas. The spatial differentiation level of different residential areas also varies, with central location, landscape, educational resources, and other dominant scarce resources being the key to residential spatial differentiation in most of China’s big cities. In addition, residential spatial differentiation can lead to issues including housing wealth inequality, resource deprivation, and class identity solidification. In the end, this paper puts forward policy implications on alleviating residential spatial differentiation and optimizing allocation of residential resources.

Portfolio Composition and Home Ownership Importance for the Wealth Distribution in Europe

The paper analyzes household portfolio dynamics in Europe, focusing on the period from 2010 to 2017 using data from the European Central Bank’s Household Finance and Consumption Survey (HFCS). The study examines the evolution of household portfolios after the 2008 financial crisis, with housing assets found to be one of the key drivers. On the aggregate level, the household portfolio remained stable between 2010 and 2017. Housing importance remained crucial during all the time and drove the majority of portfolio performance for households in 40–99 percentiles of the wealth distribution. With the evolution of household portfolios, age cohorts 45–54, 65 and older strengthen their positions by increasing the share of their owned assets in comparison to other age cohorts, which lost part of their shares. I conclude the paper with some stylized facts showing the relationship between home ownership, the share of portfolio in housing assets and wealth inequality between countries. The stylized facts provide evidence that household portfolios significantly concentrated in housing assets during the analyzed decade. Furthermore, the transition of households from renters to home owners contributed significantly to the changes in wealth inequality that occurred after the 2008 financial crisis.

Housing wealth inequality, intergenerational transfers and young households in the super-homeownership system

This article focuses on the problem of housing wealth inequality as an increasingly important dimension of social inequality in post-socialist super-homeownership countries and uses the Czech Republic as a case study. The article shows that housing wealth inequality is higher than income inequality and that it tends to grow in time, especially due to the spatially uneven appreciation of house prices. However, intergenerational housing-related within-family resource transfers have a mitigating effect on growing wealth inequality. Using a microsimulation model, the article shows that any discontinuation of transfers could significantly increase housing wealth inequality in the future, especially among young families. Unlike in some Western societies, intergenerational resource transfers thus work to equalise rather than catalyse housing wealth inequality. These findings have significant implications for measuring social inequalities, demographic trends, and the stability of housing systems in post-socialist countries.

Reaching for yield and the housing market: Evidence from 18th-century Amsterdam

Do investors reach for yield when interest rates are low and does this behavior affect the housing market? Using the unique setting and data of 18th-century Amsterdam, I show that reach-for-yield behavior of wealthy investors resulted in a large boom and bust in house prices and major changes in rental yields. Exploiting changes in the supply of bonds, I show that investors living off capital income shifted their portfolios towards real estate and other higher-yielding assets when bond yields were low and decreasing. This behavior exacerbated house price volatility and increased housing wealth inequality.

Housing wealth distribution, inequality and residential satisfaction

ABSTRACT This research investigates the relationship between housing wealth and residential satisfaction. Using household panel survey data from the UK, we find that individuals’ asymmetric responses to changes in housing wealth distribution, that is, loss aversion experienced by the worse-off group, could offset the gain from an increase in housing wealth at the aggregate level. Consequently, housing wealth growth does not necessarily improve residential satisfaction for society as a whole if it leads to housing wealth inequality. Given the significant impact of housing wealth distribution on residential satisfaction, it is important to consider housing wealth inequality in making public policy decisions.

The Growing Intergenerational Housing Wealth Divide: Drivers And Interactions In Australia

ABSTRACT This paper unpacks the drivers of growing intergenerational housing wealth inequality in Australia. We also account for the multidimensional nature of housing wealth divides by examining the interaction between age and other divides. We find that the Australian intergenerational housing wealth gap widened from 161% in 1997–98 to 234% in 2017–18, favouring the older cohort. This was driven by lower rates of homeownership and lower property value growth among younger cohorts, with the relative lack of homeownership access the more significant driver. However, higher rates of couple formation and tertiary education amongst the young mitigated a further widening of the gap. The intergenerational housing wealth gap is exacerbated within specific population subgroups. The growing housing wealth gap between the income-poor young and income-rich old has been particularly alarming, climbing from 532% to 1230% over two decades. We discuss implications for policies seeking to alleviate intergenerational tensions in housing markets.

The applicability of self-reported home values in housing wealth inequality assessment: evidence from an emerging country

One of the measures of housing wealth inequality is the property’s market value. In existing analyses, this figure is often a subjective value determined by homeowners. Little is known about the validity of using this type of data as a substitute for market value in inequality studies. Therefore, this paper aims to examine whether self-reported home values can be applied to evaluate housing wealth inequality. In order to achieve this goal, first, a theoretical framework on the irrelevance of valuation bias for the assessment of housing wealth inequality was developed, followed by an empirical analysis. The latter included gathering information on subjective flat values and their characteristics in Warsaw. Next, a geographically weighted regression was calibrated to calculate the market value of these dwellings. Then, using the Gini coefficient, housing wealth inequality levels were estimated separately for subjective and objective home values. The results revealed that the former could serve as a very good proxy for the latter in housing wealth inequality analysis. The findings hold across almost all identified subgroups based on respondents’ gender, age, income, wealth, education and employment status. Finally, recommendations were formulated for public institutions and housing research.

Dynastic Home Equity

Using a nationally representative panel of consumer credit records for the US from 1999 to 2021, we document a positive correlation between child and parent homeownership. We propose a new causal mechanism behind this relationship based on parents extracting home equity to help finance their child's home purchase and quantify this mechanism in several ways. First, controlling for cohort, zip code, age, and the creditworthiness of parents and children, we find that children whose parents extract equity are 60% more likely to become a homeowner than children whose homeowner-parents do not extract equity. Second, using an event study approach, we find that the increase in child homeownership occurs almost entirely in the year when parents extract equity. Third, using variation in equity extraction induced by households near leverage constraints, we find parental equity extraction increases the child's probability of becoming a homeowner by about five times. Our results highlight the importance of familial wealth for household wealth accumulation and housing wealth in particular. A back-of-the-envelope calculation suggests that dynastic home equity increases housing wealth inequality among young adults by 20%.

Working from home and long-term housing wealth inequality in large cities of advanced economies

PurposeThe purpose of this study is to explain the potential long-term impacts of working from home on housing wealth inequality in large cities of advanced economies.Design/methodology/approachThis study is descriptive research and It supports the arguments by providing some emerging evidence from property markets in developed countries.FindingsThe authors argue that due to the unique nature of the COVID-19 crisis, it will have a different and long-term impact on housing wealth inequality. Changes in the working arrangements of many professionals will change the housing demand dynamic across different suburbs and may lead to a reduction of the housing wealth gap in the long term. In this paper, the authors propose five mechanisms that may impact housing wealth inequality.Research limitations/implicationsLong-term data is required to test the proposed conceptual model in this study and the effect of the COVID-19 pandemic on housing wealth across and within suburbs of large cities.Practical implicationsPolicymakers and regulators may benefit from the discussions and suggestions provided in this study and consider the proposed avenues on how new changes in the working environment (remote working) may result in a reduction of housing wealth inequality.Originality/valueThis study presents a new perspective about the potential long-term impacts of working from home that is posed by the COVID-19 pandemic on housing wealth inequality in large cities of developed economies.

Self-reported and Market Home Values in Housing Wealth Inequality Measurement: Evidence from Warsaw and Prague

This paper aims to examine whether self-reported home valuations can be a substitute for objective market data in studies on the level of housing wealth inequality. In order to achieve this aim, information on subjective values of flats and their features in Warsaw (Poland) and Prague (Czechia) was used. Next, hedonic models were estimated to calculate the objective values of these residential properties. The results indicated that, on average, homeowners overestimated their real estate by 2.10% in Warsaw and underestimated by 5.49% in Prague. Finally, using tests for the equality of variances, it was examined whether the level of housing wealth inequality differed significantly when calculated using subjective and objective home values. The findings showed that self-reported home values cannot serve as a perfect proxy for market values when assessing the level of housing wealth inequality in both cities.

Difference in Housing Finance Usage and Its Impact on Housing Wealth Inequality in Urban China

With the increasing importance of financial loans in home purchases in urban China, the role of housing loans in the accumulation of housing wealth needs to be unraveled. Using the data from the 2017 China Household Finance Survey (CHFS), this study investigates the use of housing loans and their impact on housing wealth inequality. It has been found that people with higher socioeconomic status and institutional advantages benefit more from housing provident fund loans and are more likely to fully invoke different financing channels to accumulate housing wealth. On the contrary, disadvantaged groups have to resort to costly market-based mortgages to finance their home purchases. This leads them to fall further behind in housing wealth accumulation. The spatial stratification of housing wealth accompanying the urban hierarchy was also observed and found to be closely linked to the type of housing loans. In this increasingly financialized era, relying on financial instruments in the process of household asset accumulation may further amplify the existing wealth inequality among social groups.

Post-crisis developments in young adults’ housing wealth

How has housing wealth inequality changed for young-adult households in the post-financial crisis period, and what is driving such change? We chart a path for subsequent studies by analysing the previously unexamined post-crisis housing wealth profile of young adults via different angles and using multiple inequality measures. Using household micro-data for 11 European countries ( Household Finance and Consumption Survey, 2010–2017) and the United States ( Survey of Consumer Finances, 2010–2016), we find that the accumulation of housing assets for 22–44 year olds is unevenly concentrated among high-income homeowners, over and above what would be expected given the well-known decline in homeownership. We describe and assess several potential drivers for these wealth profile changes, finding that the current explanations offered in the literature do not adequately account for the unequal wealth profile of young people. We conclude that a mix of dynamics, including housing market volatility, housing market configurations leading to uneven capital gains and losses, and the increased social selectivity of homeownership intersect to shape the ways that young adults navigate the housing market in post-crisis times.

The Distributional Effects of Monetary Policy: Evidence from Local Housing Markets in Australia

AbstractThe effect of monetary policy on housing prices varies significantly across local housing markets. This heterogeneity across local housing markets can be partly explained by variation in housing supply conditions—housing prices are typically more sensitive to changes in interest rates in areas where land is more expensive. The fact that housing prices in more expensive areas are more sensitive to changes in interest rates than in cheaper areas indicates that lower (higher) interest rates increase (decrease) housing wealth inequality. However, the effects of monetary policy on housing wealth inequality appear to be temporary. Other factors also explain the variation in sensitivity to monetary policy across local housing markets with the sensitivity being greater in areas in which incomes are relatively high, households are more indebted and there are more housing investors. This suggests that the sensitivity of housing prices to monetary policy is state dependent.

What Drove Housing Wealth Inequality in China?

AbstractAlthough China is experiencing a deterioration in wealth distribution where housing is playing a dominant role, this issue has received scant research attention despite its importance. Combining four rounds of the China Household Finance Survey (CHFS) data, this paper measures and discusses wealth inequality in China, with a special emphasis on the contribution of housing. Our analysis reveals that housing is the largest contributor to wealth inequality, responsible for around 70 percent of total wealth inequality, and its contribution has been increasing over time. Our research efforts have focused on the housing wealth disparity, exploring its composition from alternative perspectives. The results show that housing wealth inequality has also been rising over time and an absolute majority of housing wealth inequality is due to within‐group gaps. Finally, we employ Wan's (2004) regression‐based decomposition methodology to quantify the contributions of different determinants to housing wealth disparity in China, and to demonstrate serious biases in the conventional approach that is often used to analyze housing wealth inequality.

Reaching for Yield: How Investors Amplify Housing Booms and Busts

Do investors reach for yield when interest rates are low, and how does this behavior influence house prices? This paper uses the unique setting of 17th-18th century Amsterdam to answer this question, using newly-collected archival data on investment portfolios and the universe of property transactions in this period. Exploiting exogenous shocks in the supply of safe government bonds, I show that wealthy investors shifted their wealth towards higher-yielding assets such as real estate when bond yields were decreasing. This behavior exacerbated booms and busts in house prices and resulted in a persistent increase in housing wealth inequality. Reach for yield behavior was not limited to real estate assets and contributed to the development of international financial markets.

A Behavioural Investigation of the Easterlin Paradox in Housing Markets

Using models from the happiness and the behavioural economics literature, we develop an analytical framework to investigate the relationship between housing wealth and residential satisfaction. Two hypotheses, i.e., social comparison and adaptation, are tested by using household panel survey data from the UK. We find support to the social comparison hypothesis. Individual’s asymmetric response to changes in housing wealth distribution, i.e., loss aversion experienced by the worse-off group, could offset the gain from an increase in housing wealth at the aggregate level. As a result, housing wealth growth does not necessarily improve residential satisfaction for the society as a whole if it leads to housing wealth inequality. Although our empirical evidence is from the UK, regional disparity of housing prices is commonplace in many parts of the world. Our findings are particularly relevant to developing countries, where economic growth is often accompanied by widening income gap and rising wealth inequality. Policymakers should be mindful about the far-reaching effect of housing wealth inequality. Given the significant impact of housing wealth distribution on residential satisfaction, and ultimately people’s subjective well-being, it is important to tackle inequality in housing markets.

Housing wealth inequality in urban China: the transition from welfare allocation to market differentiation

The differentiation of housing assets is an important embodiment of wealth inequality and is also an important dimension of social stratification. The housing distribution in China has experienced a transition from welfare allocation to market distribution over the decades. This process has led to a change in the housing stratification mechanism and widened housing wealth inequality, which has evoked theoretical disputes about “market transition,” “power persistence,” and “power derivation.” Based on the 2017 Chinese Social Survey (CSS), this article examines the housing wealth inequality in urban China and probes the major drivers of housing stratification. The results suggest that with the progress of housing marketization, market mechanisms have replaced the original socialist redistribution mechanisms and have become the major drivers of housing wealth inequality. However, some of the original socialist institutional arrangements continue to have strong effects on housing wealth inequality. The persisting institutional effect may provide a new perspective for exploring housing wealth inequality in contemporary urban China.

Decentralized markets and the emergence of housing wealth inequality

Recent studies suggest that the traditional determinants of housing wealth are insufficient to explain its current inequality levels. Thus, they argue that efforts should focus on understanding institutional factors. From the perspective of complex adaptive systems, institutions are more than the ‘the rules of the game’, they also consider the interaction protocols or the ‘algorithm’ through which agents engage in socioeconomic activities. By viewing markets as complex adaptive systems, I develop a model that allows estimating how much housing wealth inequality is attributable to the market institution. It combines virtues from two different modeling traditions: (1) the microeconomic foundations from overlapping-generation models and (2) the explicit interaction protocols of agent-based models. Overall, the model generates prices and housing inequality endogenously and from bottom-up; without needing to impose assumptions about the aggregate behavior of the market (such as market equilibrium). It accounts for economic and institutional factors that are important to housing consumption decisions (e.g., wages, consumption of goods, non-labor income, government transfers, taxes, etc.). I calibrate the model with the British Wealth and Assets Survey at the level of each individual household (i.e., ~25 million agents). By performing counter-factual simulations that control for data heterogeneity, I estimate that, in the United Kingdom, the decentralized protocol interaction of the housing market contributes with one to two thirds of the Gini coefficient. I perform policy experiments and compare the outcomes between an expansion in the housing stock, a sales tax, and an inheritance tax. The results raise concerns about the limitations of traditional policies and call for a careful re-examination of housing wealth inequality.