A panel data analysis for housing affordability in Taiwan

Although the equilibrium relationship between household income and house price is well documented in previous theoretical studies, the empirical results are usually unfavorable. This article examines whether a long-term relationship between house price and income exists through a panel integration and cointegration methodology in analyzing data from four cities in Taiwan from 1980 to 2007. The findings support the existence of a long-term equilibrium relationship between income and house price, which indicate that housing affordability in Taiwan is stable. After controlling other variables, the income elasticity of house prices on average is close to one. Furthermore, evidence points to a bi-directional causality between income and house price.