The nonlinear relationship between housing prices and income inequality

Many countries have experienced increasing income inequality alongside rising housing prices over the past few decades. As housing prices continue to climb, the resulting growth in property-based income is expected to further widen the wealth gap. This study examines the linear and nonlinear impact of housing prices on income inequality. Sample data cover 40 countries between 1980 and 2019, and a generalized method of moments and quantile regression are applied. The main findings are as the followings: first, long-run housing prices demonstrate a nonlinear effect on income inequality, where the influence of increasing long-run housing prices lessens over time. In contrast, short-run increases in housing prices are associated with a reduction in income inequality. Second, higher long-run housing prices in middle-income countries would have a larger worsening effect on income inequality, while higher short-run housing prices in high-income countries have a better improving effect on income inequality. Finally, based on the results of quantile regression, the study reveals the impacts of housing prices across different levels of income inequality. Comparing the effect of housing prices on income inequality at different level of income inequality, it is positive at a low level but negative at a middle level in both short run and long run. If income inequality is at a high level, the effect is negative in the long run but positive in the short run. When long-run housing prices continue to rise, policymakers should take appropriate measures to curb the rise of housing prices to avoid worsening income inequality.