A Study on Income Variables Effect of Long-Term Housing Demand

Previous studies have used households` permanent income to estimate long-term housing demand, as in the Mankiw and Weil Model(1989). However, in Mankiw and Weil(1989), the long-term effects of income varying with time were not taken into account. In the current study, by contrast, the fact that income depends on changes in economic growth has been reflected in household characteristics when estimating permanent income. This study analyzes the effect of income variables using the GDP scenario, which compares the effect that permanent as well as economic growth-dependent income can have on long-term housing demand estimates. The results show that the elasticity of permanent income was similar (0.46) to that of previous studies (0.453-0.488), while per capita GDP and per household GDP displayed greater elasticity than that of permanent income. In addition, upon comparing estimates of per household demand with the number of households by KOSIS, the error between variables was not differentiable over short to mid-term horizons. On the other hand, the error of per capita GDP and per household GDP was less than that of permanent income for long-term estimates of over 20 years. This study highlights the importance of carefully selecting income-related variables when estimating long-term housing demand