Marriage-induced homeownership as a driver of housing booms: evidence from Hong Kong

Abstract

Buying a home for marriage is customary in many societies. Traditionally, therefore, young couples getting married is a key driver of demand for homeownership. Yet the idea of marriage-induced demand for homeownership is a relatively underexplored component of housing price change. We examine the role of marriage-induced demand for homeownership in Hong Kong, a relatively self-contained housing market with fewer options for migration than most large cities. We use an instrumental variable strategy to test the hypothesis that more unmarried individuals at the prime age for marriage increases housing prices. We find that an additional one thousand marriage-aged but unmarried individuals leads to a seven per cent increase in housing prices. These findings confirm the importance of demographic factors such as cohort size and marriage rates on housing price projections, housing needs assessments, and housing policy.

Keywords:

• Marriage
• homeownership
• housing prices
• instrumental variable

JEL Classification:

• J11
• R21

Acknowledgements

This project was financially supported by U.S. Government's Fulbright Program. The corresponding author gratefully acknowledges the financial support provided by the U.S. Government's Fulbright Program (IIE Grant no: PS00213217) for sponsoring his visit at UCLA.”

Notes

1 Ever-married individuals refers to those who are or have been married previously.

2 For more details on the Hong Kong housing market see Monkkonen et al. (2012)

3 The Hong Kong Census and Statistics Department (2016), retrieved from https://www.censtatd.gov.hk/hkstat/sub/sp160.jsp?productCode=FA100055 Table 4, also shows that the crude marriage rate is stable, which supports our arguments that most never-married individuals, but not all, will eventually become married couples.

4 For succinct summary of those measures, see the graphical illustration retrieved from http://www.colliers.com/en-gb/hongkong/about/media/2015-03-02-hk-property-market

5 For details of various stamp duty, see Chapter 4 of the 2017 Hong Kong Economic Reports; Footnote (3) https://www.hkeconomy.gov.hk/en/pdf/er_17q4_ch4.pdf

6 Loan-to-Value Ratio (LTV) caps and Debt Servicing Ratio (DSR) limits for property mortgage loans with effect on 19 May 2017 (2016). Retrieved from Hong Kong Monetary Authority, Web site: https://www.hkma.gov.hk/media/eng/doc/other-information/FAQ_J1_Table_Eng.pdf

7 Census and Statistics Department of Hong Kong (2018), data request reference: (L/M (26) in CENST/SCDEMO2/8-35/16-71/3)

8 For a more formal analysis of the tenure-choice model with a down-payment scenario; see Brueckner (1986) and Artle & Varaiya (1978). Simply put, individuals with income-tax rates below the cut-off point $\widehat{\mathit{\tau }}$ remain as renters. For those with tax rates above $\widehat{\mathit{\tau }},$ it will depend on his/her patience (i.e., discount rate). Only the patient individuals (i.e., with a high discount rate) among this high tax group will be able to accumulate the required down-payment, while the impatient ones (those with a lower discount rate) will not be able to do that, and will remain as renters, notwithstanding the advantage of homeownership based on annualized cost considerations.

9 See Wooldridge (2015) for a discussion of the use of time trends (instead of time dummies) in the time series analysis.

10 For simplicity, we ignore divorce and widowhood and a-18 refers to the legal age of marriage in Hong Kong.

11 Suicide is assumed to be independent of housing prices.

12 Hong Kong census and statistics department (HKCSD). (2016). Thematic Report—Persons from the Mainland Having Resided in Hong Kong for Less Than 7 Years. Retrieved from: https://www.bycensus2016.gov.hk/data/16bc-pmrs.pdf

13 One potential concern is selection issues arising from never-married individuals aged 35-44, and the idea that some members of this group do not get married due to their low-income status. However, census statistics shows that the never-married population aged 35-44 has a median monthly income of HK$16,000, which is 3% higher than the median monthly income of the overall married population in Hong Kong. Data request ref at Hong Kong Census Department is L/M (26) in CENST/SCDEMO2/8-35/16-71/3 

14 Rates are a tax on property charged in accordance with the Rating Ordinance (Cap. 116) under the leasehold land system in Hong Kong. Properties in Hong Kong are charged 3% of their estimated annual open market rental value. The owner (i.e. the lessee of the leasehold land) is liable for government rent. If the person who pays government rent is not the owner, the government rent paid is a debt due to the person by the owner, unless there is an express agreement requiring otherwise.

15 First stage results are enclosed in the Appendix.

Additional information

Notes on contributors

William Ka Shing Cheung

William Ka Shing Cheung is a Lecturer in the Department of Property at the University of Auckland Business School. His research focuses on understanding the role of government as an institution in shaping the urban real estate market. He was also a Fulbright scholar at UCLA Luskin School of Public Affairs and an Endeavour fellow at The University of Melbourne.

Julian Tsz Kin Chan

Julian Tsz Kin Chan is a senior economist at Bates White Economic Consulting. His research focuses on econometrics, machine learning, and their applications to network and text data. Julian is a core maintainer of the open-source Policy Change Index (PCI) models.

Paavo Monkkonen

Paavo Monkkonen is an Associate Professor in the Department of Urban Planning at the UCLA Luskin School of Public Affairs. His research focuses on the ways housing policies - especially finance policies and land use regulations - shape housing markets and urbanisation patterns.