Estimating the Housing Affordable Limit for Individual Household--Empirical Comparison in Taiwan Municipalities

The understanding of the housing affordability is affected by several constraints of households not only the concern of family’s income, housing price, but also the down payment, and mortgage interest as well. Gan and Hill... [ view full abstract ]

The understanding of the housing affordability is affected by several constraints of households not only the concern of family’s income, housing price, but also the down payment, and mortgage interest as well. Gan and Hill (2009) brings up the concept of the “affordability limit (AL)” to estimate the maximum affordable housing price of a household given a certain constraints of family socio-economic attributes and government policies such as housing mortgage subsidies. The shortage (or the so-call “gap”) from the maximum affordable price limit to the real price can then be computed and the probability of the gap can be further estimated under the given probability distribution of housing price. However, the affordability gap of families in different income levels would not be the same and the probability would also be different. In this research we firstly follow the AL concept to compute the probability of affordability gap by household income strata. We then construct econometric models to catch variables that affect the variation of the probability. 

We have conducted an empirical comparison in Taiwan municipalities, and results show that the housing prices in northern region were significantly higher than the central and southern regions, which is measured by the housing prices to income ratio (PIR). The highest PIR value is 15.75 in Taipei, the lowest 6.74 in Tainan. The elasticity analysis revealed that a 1.0% increase in household income in Kaohsiung City was more significantly related to the housing affordability limit (AL), will increase the affordability by 0.68%. Comparing to other municipalities in Taiwan, Taoyuan and Tainan are more sensitive to the 1% increase of family size with increase of AL value by 0.15% and 0.13%, respectively.