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Article: Starter Home Premium and Housing Affordability

TitleStarter Home Premium and Housing Affordability
Authors
KeywordsCapital constraint
Credit rationing
Housing ladder
Housing subsidy
Starter homes
Issue Date1-Jan-2022
PublisherSpringer
Citation
Journal of Real Estate Finance and Economics, 2022 How to Cite?
Abstract

Capital constraints are a major obstacle that holds back cash-poor households from purchasing a home. A workaround is to compromise the housing size and quality by buying a starter home one can marginally afford first. This study aims to investigate how capital constraints distort the pricing of starter homes. In Hong Kong, the government builds subsidized starter homes, which can be resold either to any households at full market prices through the privatized submarket or to households of limited affordability at lower prices through the affordable submarket. The subsidy in the latter case comes from the equity contribution of the government. If there were no capital constraints, the price gap between the two submarkets should simply be the government’s equity. However, our empirical analysis reveals a much smaller price gap, indicating that households with limited affordability are willing to pay a starter home premium in order to relax their capital constraints. Our estimation shows that the premium is in the range of 4.5% to 6.8%, and enlarges when the housing market becomes more unaffordable. The pricing of starter homes is based not only on their quality but also on their ability to relax capital constraints.


Persistent Identifierhttp://hdl.handle.net/10722/338367
ISSN
2023 Impact Factor: 1.7
2023 SCImago Journal Rankings: 0.580
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorWong, SK-
dc.contributor.authorDeng, KK-
dc.contributor.authorCheung, KS -
dc.date.accessioned2024-03-11T10:28:20Z-
dc.date.available2024-03-11T10:28:20Z-
dc.date.issued2022-01-01-
dc.identifier.citationJournal of Real Estate Finance and Economics, 2022-
dc.identifier.issn0895-5638-
dc.identifier.urihttp://hdl.handle.net/10722/338367-
dc.description.abstract<p>Capital constraints are a major obstacle that holds back cash-poor households from purchasing a home. A workaround is to compromise the housing size and quality by buying a starter home one can marginally afford first. This study aims to investigate how capital constraints distort the pricing of starter homes. In Hong Kong, the government builds subsidized starter homes, which can be resold either to any households at full market prices through the privatized submarket or to households of limited affordability at lower prices through the affordable submarket. The subsidy in the latter case comes from the equity contribution of the government. If there were no capital constraints, the price gap between the two submarkets should simply be the government’s equity. However, our empirical analysis reveals a much smaller price gap, indicating that households with limited affordability are willing to pay a starter home premium in order to relax their capital constraints. Our estimation shows that the premium is in the range of 4.5% to 6.8%, and enlarges when the housing market becomes more unaffordable. The pricing of starter homes is based not only on their quality but also on their ability to relax capital constraints.</p>-
dc.languageeng-
dc.publisherSpringer-
dc.relation.ispartofJournal of Real Estate Finance and Economics-
dc.rightsThis work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.-
dc.subjectCapital constraint-
dc.subjectCredit rationing-
dc.subjectHousing ladder-
dc.subjectHousing subsidy-
dc.subjectStarter homes-
dc.titleStarter Home Premium and Housing Affordability-
dc.typeArticle-
dc.identifier.doi10.1007/s11146-022-09935-8-
dc.identifier.scopuseid_2-s2.0-85143521487-
dc.identifier.eissn1573-045X-
dc.identifier.isiWOS:000895014000001-
dc.identifier.issnl0895-5638-

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