Income Inequality and Housing Affordability in Selected Metropolises of Iran: A Pseudo-Panel Approach

Housing is one of the most important and most expensive assets of the human life. It is an expensive commodity that requires long-term planning to purchase it, so housing affordability in the household budget portfolio is one of the most important issues. In this paper, based on Zhang (2015) model and Matlack and Vigdor (2008) study and using a cross-sectional household income - expenditure microdata generated by the Iranian Statistics Center, we generate pseudo-panel data. We make cohorts by repeated cross sectional data and monitor family behavior for 25 years. This study was conducted for the period of 1991 to 2015 and includes seven metropolises: Tehran, Karaj, Mashhad, Isfahan, Tabriz, Shiraz and Ahwaz, which covers only urban areas. The target population studied in this study is those who were born between the years 1930-1989. The empirical results demonstrate that higher per capita income inequality of household within metropolises has a negative and significant effect on residual income (household non-housing expenses) and a positive and significant effect on the house price and rent. That is, higher income inequality is related to a lower residual income, higher rent-to-income ratio and higher housing-price-to-income ratio for low-income households.In particular, a rise in income inequalities, as increase in gap between high-income groups and low incomes, lead to a reduction in housing affordability of middle/low-income households, and the quality of use of these households is significantly reduced. The results also show that permanent income has a positive and significant effect on housing affordability, and higher permanent income leads to increase in residual income.