ISSN (Print) 0473-453X

Discussion Paper No. 1180

ISSN (Online) 2435-0982

A SPECIAL ISSUEON HOUSING AFFORDABILITY:
AN INTRODUCTION

Charles Ka Yui Leung
Byron Kwok Ping Tsang

July 2022

The Institute of Social and Economic Research
Osaka University
6-1 Mihogaoka, Ibaraki, Osaka 567-0047, Japan

A Special Issue on Housing Affordability: An Introduction

Charles Ka Yui Leung, City University of Hong Kong, Hong Kong
Byron Kwok Ping Tsang, Virginia Tech, USA

This version: July 2022

Abstract
This short note introduces a forthcoming special issue on housing affordability. Ittries to relate to the recent literature as well.

Keywords: housing affordability; demand and supply; policy implications;structural model;

JEL classification: E30; H20; R30

A casual search of “housing affordability” (HA) on Google delivers morethan 190,000,000 results. While it is an imprecise measure, it confirms that HA is aglobal concern. Recent studies on the topic have been discussed by Ben-Shahar etal. (2020), Deng et al. (2019), Gabriel and Painter (2020), Leung (2022), among
others.
Motivated by the vast demand for affordability research, we organized avirtual workshop titled "Post-Crisis Housing Market and Financial Stability:
Recovery without Affordability?" in July 2020. We thank Yin-Wong Cheung, whoco-organized the workshop, and the City University of Hong Kong for the support.
When planning the workshop in 2019, we considered the world after the Global
Financial Crisis in 2008. Little did we know that the COVID-19 pandemic would
impact the world on such, and probably larger, scale. Therefore, we appreciate theeffort by Malpezzi (2022), who surveys the housing affordability issue postCOVID-crisis. While the impact of COVID may still be evolving (Wang et al.,2022) and the global economic situation could deteriorate with the Russia-Ukraine
War (United Nations, 2022), we believe that Malpezzi (2022) will serve as a usefulreference for future research.
Previous research on housing affordability focuses on the demand side.
Recent efforts pay attention to the supply side, including the real estate developer
behaviors (e.g., Fan et al., 2022). In this special issue, Sun and Yiu (2022) examine
the default probabilities of real estate developers in five ASEAN countries(Indonesia, Malaysia, Philippines, Thailand, and Vietnam) with firm-level data. Ifmany real estate developers default at the same time, the new supply of housing
will be affected, and house prices will also be affected. The firm-level approach isalso in line with the current research trend.

A distinct feature of this special issue is our balance of theoretical analysis,empirical evidence, and policy implications. The three other papers make use ofstructural models to produce sharp interpretations. For instance, Leung and Tang
(2022) construct a dynamic equilibrium model where the house price-to-incomeratio (PIR) evolves endogenously. PIR is a commonly used metric, but its
equilibrium dynamics were not explored. Leung and Tang (2022) fill this gap.
Based on their model, they derive a statistical test for detecting persistentdeviations of PIR from the steady-state values. They also apply their model toOECD data.
Yao (2022) documents that the drop in American youth homeownership is
mainly driven by non-college-educated workers. She then develops an overlapping
generations model to rationalize such a phenomenon. She finds that the root
reasons are the rising college share and the widening of college premium. Based onher model, she recommends that eliminating mortgage interest tax deduction canincrease the homeownership rate of non-college-educated workers.
Last but not least, Yılmaz and Yeşilırmak (2022) build a spatial equilibrium
model and compare the housing vouchers with the transportation vouchers. Unlike
the traditional model with a unique employment center, the central business district(CBD), their model features multiple employment centers. They find that thehousing vouchers affect the spatial ordering of households through the incomeeffect, while transportation vouchers affect the spatial ordering through themarginal cost of commuting. The "losers" lose less in terms of welfare undertransportation vouchers.
All these analyses and results presented in this special issue are far from the"final words" on the housing affordability issue. Instead, we hope they will
stimulate further investigations on the topic, and we look forward to learning morefrom future research.

Reference
Ben-Shahar, D., Gabriel, S. & Oliner, S. (2020) New research on housing
affordability, Regional Science and Urban Economics, Article 103438.
Deng, Y., Qin, Y. & Wu, J. (2019) Superstar cities and the globalization pressureson affordability, Journal of Housing Economics, Article 101638.
Fan, Y., Leung, C. K. Y. & Yang, Z. (2022) Financial Conditions, Local
Competition, and Local Market Leaders: The Case of Real Estate Developers,
Pacific Economic Review, 27, 131-193.
Gabriel, S. & Painter, G. (2020) Why affordability matters, Regional Science andUrban Economics, Article 103378.
Leung, C. K. Y., ed. (2022) Handbook of Real Estate and Macroeconomics,
Northampton, M.A.: Edward Elgar.
Leung, C. K. Y. & Tang, E. C. H. (2022) The dynamics of the house price‐to‐income ratio: Theory and evidence, Contemporary Economic Policy, this issue.
Malpezzi, S. (2022) Housing affordability and responses during times of stress: A
preliminary look during the COVID‐19 pandemic, Contemporary Economic
Policy, this issue.
Sun, W. & Yiu, M. (2022) Financial conditions and the well‐being of the realestate sector—A bottom‐up default analysis on five ASEAN Economies,
Contemporary Economic Policy, this issue.
United Nations (2022) Global impact of the war in Ukraine: Billions of people face
the greatest cost-of-living crisis in a generation, 8th June, available athttps://news.un.org/pages/wp-content/uploads/2022/06/GCRG_2ndBrief_Jun8_2022_FINAL.pdf
Wang, Q. et al., (2022) Antibody evasion by SARS-CoV-2 Omicron subvariants
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Yılmaz, K. & Yeşilırmak, M. (2022) Access to transportation, residential
segregation, and economic opportunity, Contemporary Economic Policy, thisissue.