Study the Effect of Housing Prices on Income Inequality in Urban and Rural Areas of Iran

Subject Areas : Regional Planning

roya aleemran ¹ (Associate Professor, Department of Economics, Tabriz Branch, Islamic Azad University, Tabriz, Iran.)
seyed ali aleemran ² (Ph.D. in Economics, Department of Economic Development and Planning, Faculty of Economics and Management, University of Tabriz, Tabriz, Iran.)

Received: 2021-03-18 Accepted : 2021-09-26 Published : 2024-02-20

Keywords: income inequality, Johansen-Juselius Method, Housing Prices,

Abstract :

Abstract Income inequality has been one of the debating issues among economists and policy makers from the last few decades. So that, reducing inequality has been one of the main concerns of social reformers and policy makers and it is considered as one of the main problems in many developed and developing countries. Furthermore, housing has a vital role in household’s consumption and asset portfolio and it is important because of playing various roles in the individual’s lives, the economy and society. Therefore, considering the importance of income inequality as one of the concerns of economic policy makers and the importance of housing prices in the economy, this research seeks to study the effect of housing prices on income inequality in urban and rural areas of Iran by using Johansen-Juselius method over the period of first quarter of 2009 to forth quarter of 2019. The results of the study indicate that, housing prices has a significant positive impact on income inequality in urban and rural areas of Iran. So that, the results of the study based on the Gini coefficient index as an indicator of measuring income inequality, indicate that in the urban areas in the long run, one percent increase in the housing prices increases the Gini coefficient by 0.61 percent and in the rural areas in the long run, one percent increase in the housing prices increases the Gini coefficient by 1.37 percent. Also, the results of the study based on the ratio of the cost of ten percent of the richest to the cost of ten percent of the poorest population as an indicator of measuring income inequality, indicate that in the urban areas in the long run, one percent increase in the housing prices increases the ratio of the cost of ten percent of the richest to the cost of ten percent of the poorest population by 6.10 percent and in the rural areas in the long run, one percent increase in the housing prices increases the ratio of the cost of ten percent of the richest to the cost of ten percent of the poorest population by 3.99 percent.   Extended Abstract   Introduction Income inequality has been one of the debating issues among economists and policy makers from the last few decades. So that, reducing inequality has been one of the main concerns of social reformers and policy makers and it is considered as one of the main problems in many developed and developing countries. Also, changes in government’s approach to the issue of income inequality have led to significant studies to identify resonator or reducer factors of income distribution inequality in recent years. Furthermore, housing has a vital role in household’s consumption and asset portfolio and it is important because of playing various roles in the individual’s lives, the economy and society. First, housing is a basic need for shelter and it is an important part of the household wealth. Second, it is related to other sectors such as construction, finance and retail. Among the types of assets, housing is one of the most important socio-economic components in a country, which can be said that, it has a direct impact on the level of public welfare more than other assets. Housing prices not only affect the consumption of homeowners, but it also affect the consumption of people who do not have a own housing. on the one hand, Changes in housing prices, change a person’s wealth over time and consequently, consumption utility. On the other hand, due to the different composition of assets for different people, changes in housing prices will cause the wealth of different people to change compared to each other. Therefore, considering the importance of income inequality as one of the concerns of economic policy makers and the importance of housing prices in the economy, this research seeks to study the effect of housing prices on income inequality in urban and rural areas of Iran by using Johansen-Juselius method over the period of first quarter of 2009 to forth quarter of 2019. The main question of the research is, what is the impact of housing prices on income inequality in urban and rural areas of Iran? The sub-question of the research is, what is the impact of exchange rate on income inequality in urban and rural areas of Iran? In answer to the research questions, the hypotheses are as follows: a) Housing prices has a positive impact on income inequality in urban areas of Iran. b) Housing prices has a positive impact on income inequality in rural areas of Iran. c) Exchange rate has a positive impact on income inequality in urban areas of Iran. d) Exchange rate has a positive impact on income inequality in rural areas of Iran.   Methodology This research method is an analysis-causal and it’s target is application and statistics and data about the variables used in this study are extracted from statistical center of Iran. Also, Econometric tool used in research is Eviews Software and the econometric method is Johansen-Juselius method over the period of first quarter of 2009 to fourth quarter of 2019 for urban and rural areas of Iran.   Results and Discussion The results of the study indicate that, housing prices and exchange rate have a significant positive impact on income inequality in urban and rural areas of Iran. Regarding the positive impact of housing prices on income inequality in urban and rural areas, it can be said, given that housing demand is used by investment and consumption motives, thus, rising housing prices generates income for the rich and high income deciles who have requested housing other than their consumption needs. On the one hand, it reduces the access of households and low income deciles to housing as a consumption good. Consequently, income inequality will be increased. Also, with increasing housing prices, house speculative motive increases because of the profit in capital demand and as a result, resources allocation shifts from the productive sector to the non-productive sector and it causes income inequality. Regarding the positive impact of the exchange rate on income inequality in urban and rural areas, it can be said that an increase in the exchange rate creates rent for some wealthy people through special licenses and tariffs, thus, with the increase of the exchange rate and the creation of rents, economic resources have been transferred from the productive sector to the non-productive sector and as a result, income inequality increases. Because the benefit of increasing the exchange rate in this case, will go to the rich or high income deciles and as a result, with rising exchange rate, income inequality increases between the upper and lower income deciles. In other words, an increase in the exchange rate raises comparative prices, changes in resources allocation and exacerbates income inequality. On the other hand, rising exchange rate follows increasing the inflation rate as well. Such that the income is transferred from fixed salary earners to capital owners and as a result, income inequality increases. Even with an increase in the exchange rate, followed by an increase in inflation, government transfer payment to the lower deciles is depreciated and as a result, inequality increases.   Conclusion Given the positive impact of housing prices on income inequality, it is recommended that the speculative dmand for housing, which occurs from the direction and motivation of capital demand, be controled and for this purpose, the government can be used by tax leverage. Also, it is recommended that, in order to control speculation in the housing sector and prevent the rising housing prices, use the supervision of regulatory bodies in this regard. Also, given the positive impact of the exchange rate on income inequality, it is recommended that, the government and central bank reduce the gap between the formal and informal exchange rates of the market with appropriate policies to prevent the creation of rent for special people.

References:

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