Absolute Income Inequality and Rising House Prices

37 Pages Posted: 16 Dec 2016

See all articles by Thomas Goda

Thomas Goda

Universidad EAFIT; Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF)

Chris Stewart

Kingston University

Alejandro Torres

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF)

Date Written: December 1, 2016

Abstract

Income inequality and house prices have risen sharply in developed countries during the last three decades. We argue that this co-movement is no coincidence but that inequality has driven up house prices on the grounds that it raises the total demand for houses, which inflates their prices considering supply restrictions. To test this hypothesis, we conduct co-integration tests for a panel of 18 OECD countries for the period 1975-2010. The results suggest that income inequality and house prices in most OECD countries are positively correlated and co-integrated, and that in the majority of cases absolute inequality Granger-causes house prices when measured in absolute terms. Relative inequality, on the other hand, is not co-integrated with house prices, which is expected given that total house demand depends on the absolute amount of investible income.

Keywords: Personal Income Inequality, Absolute Inequality, House Prices, Asset Price Inflation, Asset Bubbles

JEL Classification: D31, G12, R21

Suggested Citation

Goda, Thomas and Stewart, Chris and Torres, Alejandro, Absolute Income Inequality and Rising House Prices (December 1, 2016). Center for Research in Economics and Finance (CIEF), Working Papers, No. 16-31, Available at SSRN: https://ssrn.com/abstract=2886481 or http://dx.doi.org/10.2139/ssrn.2886481

Thomas Goda (Contact Author)

Universidad EAFIT ( email )

School of Economics and Finance
Carrera 49 Número 7 Sur 50
Medellín, Antioquia -
Colombia
(57) (4) 2 61 95 00 - 8664 (Phone)

HOME PAGE: http://www.eafit.edu.co

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF) ( email )

Carrera 49 No. 7 South - 50
Bogotá
Colombia

Chris Stewart

Kingston University ( email )

Penrhyn Road
Kingston-upon-Thames
Surrey, KT1 2EE
United Kingdom

Alejandro Torres

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF) ( email )

Carrera 49 No. 7 South - 50
Bogotá
Colombia

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