Determinants of homeownership in VietNam Luận văn thạc sĩ

INSTITUTE OF SOCIAL STUDIES
THE HAGUE
THE NETHERLANDS

UNIVERSITY OF ECONOMICS
HO CHI MINH CITY
VIETNAM

VIETNAM- NETHERLANDS
PROGRAMME FORMA IN DEVELOPMENT ECONOMICS

Determinants of Homeownership in
Vietnam
A thesis submitted in partial fulfilment of the requirements for the degree of
MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

NGUYEN NGOC TUAN

BO GIAO DUC £lAO "
.
.

TRUONG

HQC KINH TE TP.HCM

THUVItN

31'1

HO CHI MINH CITY, DECEMBER 2009


UNIVERSITY OF ECONOMICS
HO CHI MINH CITY
VIETNAM

INSTITUTE OF SOCIAL STUDIES
THE HAGUE
THE NETHERLANDS

VIETNAM - NETHERLANDS
PROGRAMME FORMA IN DEVELOPMENT ECONOMICS

Determinants of Homeownership in
Vietnam
A thesis submitted in partial fulfilment of the requirements for the degree of
MASTER OF ARTS IN DEVELOPMENT ECONOMICS

Academic Supervisor: DR. HA THUC VIEN
Student: NGUYEN NGOC TUAN

HO CHI MINH CITY, DECEMBER 2009


ACKNOWLEDGEMENTS

First of all, I would like to thank Dr. Ha Thuc Vien, my supervisor, for his
valuable comments and assistance. Without his support and encouragement, my thesis

would not be finished.
I also thank to my classmate Mr. Nguyen Thanh Danh who advised me c:in data
processing for the thesis.
I would like to special thank Assoc. Prof. Dr. Nguyen Trong Hoai who has often
urged and encouraged me to complete my thesis.
Supports from Vietnam-Netherlands Programme for MA m Development
Economics' staff and classmates are fully acknowledged.
My heartfelt gratitude also goes to my family, particularly my wife and children
who are my love and motivation during the studying time.

HCMC, Winter 2009
NGUYEN NGOC TUAN


DECLARATION
I declare that "Determinants of Homeownership in Vietnam" is my own work,
that it has not been submitted to any degree or examination at any other universities, and
that all the sources used or quoted are indicated and acknowledged by complete
references.
HCMC, December 2009
NGUYEN NGOC TUAN

II


ABSTRACT
Homeownership is considered as one of most essential needs for people living in
the country. It reflects the quality of life through the dwelling condition. The percentage
of households that own private houses is increasing year to year. Furthennore, Vietnam is
a developing country that is targeting to a market-oriented economy. This has created

many opportunities for improving its whole economy and society. Consequently, the
probability ofhomeownership is improved, as well. However, the rate of poor households
is still rather high in Vietnam. This may leads to many difficulties in obtaining
satisfaction from homeownership. Therefore, this study is to examine determinants of
homeownership of households in Vietnam on the basic of descriptive statistics and
econometrics. It is found that the household characteristics such as income, the number of
members and assets of the household are statistically significant effect on the probability
of homeownership. Also, age and gender of the household heads are found to be
significantly correlated its homeownership. However, marital status and education
attainment of the head are insignificant. Other dete1minants are social-economic
characteristics such as credit assistant program, immigration and employment. The result
is that, immigration and employment have significant effects on homeownership
probability, excluding credit assistant programs.

Ill


TABLE OF CONTENTS
PAGE

ACKNOWLEDGEMENT ................................................................ i
DECLARATION ........................................................................... ii
ABSTRACT ................................................................................. iii
TABLE OF CONTENTS ................................................................. iv
LIST 0 F TABLES ......................................................................... vi
LIST OF FIGURES ........................................................................vi
LIST OF BOXES ....•...................................................................... vi
ABBREVIATIONS AND GLOSSARIES ............................................ vii
CHAPTER 1: INTRODUCTION ............................................................... 1
1.1 Problem statement ................................................................................................... 1

1.2 Objective of study ................................................................................................... 2
1.3 Research questions .......................................................................... 3
1.4 Research methodology and scope of research ........................................................ 3
1.5 Structure ofthesis ................................................................................................... 4

CHAPTER II: LITERATURE REVIEW ...................................................... 5
2.1 Theoretical literature ........................................................................ 5
2.1.1 Basic terms and concepts ........................................................................... 5
2.1.2 Assessment of economic theoretical approaches ................................... 7
2.2 Empirical studies ........................................................................... 16

CHAPTER III: RESEARCH METHODOLOGY .......................................... 21
3.1 Analytical framework .................................................................... 21
3.1.1 Qualitative choice models for durable goods ............................... 21
3 .1.2 Methods of homeownership research ....................................... 22

IV


3.1.3 Major determinants ofhomeownership ..................................... 24
3.2 Research method ........................................................................... 29
3.2.1 Justification of models .......................................................... 29
3.2.2 Econometric model specification ............................................. 30

CHAPTER IV: AN OVERVIEW OF HOMEOWNERSHIP AND HOUSING
SECTOR IN VIETNAM .................................................... 35
4.1 An overview ofhomeownership in Vietnam ............................................... 35
4.2 Changing in housing policies ............................................................ 39
4.3 Challenges ofhomeownership in the new economy .................................. .41
4.4 Housing demand in Vietnam: An example from Hanoi and Ho Chi Minh City.. .43

CHAPTER V: ECONOMETRIC ANALYSIS AND RESULTS ........................ 47
5.1 Data set ....................................................................................... 47
5.2 Logistic model ofhomeownership ...................................................... .49
5.3 Logistic regression results ..................................................................... 50
5.4 Measurement of goodness-of-fit. ......................................................... 52
5.5 Result interpretation ........................................................................ 53
5.6 Summary ..................................................................................... 56

CHAPTER VI: CONCLUSIONS AND POLICY IMPLICATIONS ................... S8
6.1 Conclusions .................................................................................. 58
6.2 Policy implications ........................................................................................ ,...... 59

REFERENCES ..................................................................................... 60
APPENDIX ......................................................................................... 65

v


LIST OF TABLE
Table 3.1: Variable descriptions ......................................................... 34
Table 4.1: Mean of determinants ofhomeownership ................................. 36
Table 4.2: Group of determinants by binary characteristics .......................... 38

LIST OF FIGURES
Figure 2.1: Wage and price setting and the natural level of employment ......... 14

LIST OF BOXES
Box 4.1: Work starts on National Assembly House project. ........................ .44
Box 4.2: Ho Chi Minh City (HCMC) to expand worker accommodations ....... .46

Vl


ABBREVIATIONS AND GLOSSARIES

FMO

:The entrepreneurial development bank of the Netherlands

GEN

:Gender

HCMC

: Ho Chi Minh City

HHINC

: Household income

HHSIZE

: Household size

IMMI

:Immigration

LA

: Lost Angeles

Logit

:Logistic

NLSY

:National Longitudinal Survey of Youth

PS

: Price setting

PUMS

: Public Use Micro-data Sample

STATA

: Statistics/Data Analysis

U.S

:United States

UNDP

: United Nations Development Program

VHLSS

: Vietnam Household Living Standard Survey

ws

: Wage setting

WTO

:World-Trade-Organization

Vll


CHAPTER I

INTRODUCTION

1.1

Problem statement
Vietnam is a transition economy that has changed from a centrally planned

economy to a market economy. Over last two decades, Vietnam has increasingly
integrated into the larger world of economies. Particularly, since joining the WTO in
November 2006, Vietnam's economy has gradually tightened with the global economy
strongly. As a result, Vietnam's economy has grown more than 7% per year and income

per capita has quickly increased from US$ 220 in 1994 to US$ 1,024 in 2008 (U.S.
Department of State 2009). Economic reform has also brought Vietnam into a new era of
development,

industrialization,

modemization

and

urbanization.

Together

with

development process, economic growth and rapid population growth, there are
appropriate 86 million people, of them 29.6% are living in cities. This places a
particularly important role on the development of housing sector and it has become
urgently important at nowadays (Mizuno & Ishigami 1999).
In 1991 Vietnamese people are allowed to have the right of owning a house by an
ordinance on housing. Therefore, homeownership is a wish of Vietnamese people
(Geertman 2003). In according with economic growth, homeownership has become a
proper demand in the life for a household because it is related to financial benefits
(possible capital gains by selling a house later) and non-monetary benefits (physical
health and development of children's cognitive capacities) in the future (Leppel 2007). In
the perception of home owners, homeownership is embodied the personal success and
happiness (Dietz & Haurin 2003). In addition, homeownership also increases local
community stability and commitment in making a choice to live in where a household
owns a house (Ratledge 1999). As a result, homeownership increases the demography

stability in comparison with house renters that often change their accommodations (Dietz


& Haurin 2003). In "Urban Development and Housing Sector in Viet Nam" research,
Mizuno and Ishigami (1999) found that households do not like to rent a house for their
accommodations. It implies that Vietnamese people would like to enhance their sense of
being ownership of a house. This really plays an important role in improving the quality
of life for the citizens. In other words, homeownership is not only helping people have
the stable accommodation, but also helping the government be easier in administration
and development local communities.
In order to ensure its long-term sustainable development, the local government
authorities have made better activities for housing sector by enforcing the law on
residential housing to support homeownership for society, especially for low income
families (Ho Chi Minh City Real Estate Association 2008). However, homeownership
probability of a household always varies with changes in economy and society, especially
in the household characteristics such as household income, gender, marital status,
education, age and household size (Hood 1999). In addition, homeownership

IS

associated with financial ability (such as savings, credit) of a household (Mizuno &
Ishigami 1999). In addition to household characteristics, homeownership is also related to
employment in which individuals would like to own a home if they can easily get jobs
(Gabriel & Painter 2001) and immigration status due to its characteristics (Coulson 1999)
because, nowadays, there are a lot of people moving to big cities from other provinces for
living.
It rs, therefore, interesting to find out what factors may influence the

homeownership probability of every household in Vietnam. This plays an important role
for increasing of the opportunity of homeownership that is related to individual wellbeings and development of the local communities (Cisneros 1995).

1.2

Objective of study
The research objective is to examine determinants ofhomeownership ofhouseholds

in Vietnam by:
(i) Household characteristics: household income, household size and household
assets; age, marital status, gender and level of educational attainment of the household
head.

2


(ii) Socioeconomic characteristics: immigration status; credit accessibility and
employment that implies the number of members working in a household.
The thesis aims to establish a conceptual model for estimating the probability of
homeownership on the basis of household and socioeconomic characteristics. From
results of estimating, policy recommendations are suggested.
The result can be useful for policy makers. They can base on the most significant
determinants of homeownership to make positive policies for improving homeownership
probability of households in Vietnam.

1.3

Research questions
The study is to answer the following questions:
(i) How do household characteristics affect on homeownership probability of

households in Vietnam?

(ii) How do socioeconomic characteristics affect on homeownership probability of
households in Vietnam?
Specifically, the thesis aims to the following questions:
(i) Is the educational attainment level of the household head a mam factor of
homeownership probability?
(ii) Does the employment really affect on homeownership probability?
(iii) Is the impact of immigration status significant on the homeownership
probability?

1.4

Research methodology and scope of research
In order to have the right answers for research questions, econometric model and

descriptive statistic methods are used to examine the relationship between the
homeownership probability and its determinants.
Specifically, the thesis is based on a Logit model for estimating determinants of the
homeownership probability of households and a descriptive statistics analysis about the
situation ofhomeownership in Vietnam.

3


Data come from a secondary source, taken from Vietnam Household Living
Standards Survey 2006 that is abbreviated to VHLSS 2006. This survey is carried out by
the General Statistics Office of Vietnam, with the support of UNDP and World Bank.
Data is surveyed throughout the country. As the thesis analyzes for the whole country, so
the sample size will be 9,189 households throughout Vietnam extracted and regressed by
STATA.

1.5

Structure of thesis
Following the introduction chapter, the thesis is continued with Chapter II in which

the most relevant economic theories and empirical studies to homeownership and its
determinants are reviewed. An adaptation of economic theories and empirical studies to
the homeownership model is analyzed. Chapter III justifies methodology that includes
analytical

framework

and

research method.

In Chapter IV,

an overview of

homeownership is analyzed on the basic of VHLSS 2006 and housing sector
development in Vietnam is presented. Model regression by econometric analysis and
evaluates the results, including presentation of data set, logistic regression results and
results interpretation are introduced in Chapter V. The last chapter is conclusions and
policy implications.

4


CHAPTER II

LITERATURE REVIEW

This chapter is developed to present a relevant theories and empirical studies of this
empirical work and it is divided into two sections. The first section is to review of
theories that lay the theoretical foundation for this work. It is organized into two parts.
The first part includes the definition of tetms and concepts related to the objects of the
thesis such as home and homeownership. In addition, house is recognized as durable
goods that households, as units of analysis, would like to own. The second part focuses
on the assessment of economic theoretical approaches that provides a review of economic
theories on human capital investment, the decision making of a household on
consumption, tenure choice decision and consumer theory for durable goods. The
assessment points out the roles not only of education, income and assets of the household
as their common resources, but also of household head's characteristics in the decision
making of household's expenditures. The decision making of the household on
consumption by using their scare endowments to maximize their utility applied for
homeownership. Last, but not least, the macroeconomic variables of employment and
immigration are introduced by the basic characteristic of the various approaches that the
thesis deals with. The second section analyzes empirical studies that can recognized more
variables from the perspective of approaches, model and data used. Moreover, the major
findings from different empirical studies and the most significant variables on
homeownership are introduced.

2.1

Theoreticalliterature

2.1.1 Basic terms and concepts
The first is the definition of home and classification of home. In the context of the
thesis, home is the physical structure in which a household is living. It could be a house

or an apartment. But only house is researched because this is appropriate to Vietnam

5


Household Living Standard Survey 2006 by Vietnam General Office of Statistical that
defines whether the household owns a house or not. In reality, there are many different
types of houses with different benefits in terms of homeownership. However, some main
types of houses that the thesis deals with are based on the definition of General Statistical
Office (2007) in the questionnaire of Vietnam Household Living Standards Survey 2006,
included "Villas"; "Strong houses with a private kitchen and bathroom/ toilet"; "Strong
houses with a shared kitchen or bathroom/ toilet"; "Semi-permanent houses"; "Shiftmade and other types of houses". These types of houses are designed for the survey by
General Statistics Office that adapts to circumstances in Vietnam.
The second is the definition of durable goods and consideration whether a house is
durable goods. According to Smith (1776), a house is a commodity, such as clothes and
household furniture that is purchased for dwelling. It is a consumption that does not make
any profit or revenue but the expenditure for a house is really useful for the owner. If a
house is built well and maintained carefully, it may be used for many centuries.
A commodity is considered as durable goods if it is expected to be used for three
years and more such as electricity equipments, household fumiture, etc. (McEachem
2006). Moreover, according to Household Living Standards Survey 2006, durables
include houses, workshop, and etc. So it is important to conclude that house is considered
as durable goods.
The third

IS

the definition of homeownership

and non-homeownership.

Homeownership concept is owner-occupied dwelling (Leppel 2007) in where a
household is living. In Vietnam, there are a lot of households own houses without any
certificates issued by govemment. In the context ofthesis, homeownership is not implied
by certificates issued by government, but it is based on the answer yes of question "Does
your household own this residence?" (General Statistical Office 2007). Residence means
one type of houses that is listed above. A household that does not own a house as
mentioned above is considered as non- homeownership. That means they can rent a house
or live together with parents etc. The homeownership that is only for dwelling does not
make any revenue for its inhabitant but it is really useful to him. In a case of a house for

6


rent, a tenant must pay the rent to the home owner. That is to say, the homeownership can
make revenue, though a house itself can produce nothing.
The last is definition of household and household is considered as the unit of
analysis for the study. Himmelweit et al. (1998) define: "household is a unit consisting of
people with a common budget who organize some aspects of work and consumption
together." This definition is appropriate to Vietnamese culture where all members live
together in a family. They together make decisions about the use of their budgets of
human and material resources. Another argument is that "individuals spend only their
own income and spend it only on themselves. But if income is shared in households, then
the person who does the family shopping is neither spending just her own income nor
buying just for herself." This is a reason for choosing a household rather than individual
person as the rational decision making units in the theory of New Household Economics
developed by Jacob Mincer and Gary Becker. In summary, a household is recognized as
the major consumption unit in many markets within a society (Schiffman et al. 2001). In
addition, the data of Vietnam Household Living Standards Survey 2006 is surveyed on
the basis of a household that a group of persons usually live and eat together. Therefore,

household is chosen as the unit of analysis of the thesis.
Furthermore, many recent household surveys are designed to ask questions to
respondents in a household. But nearly all of these questions are only asked to the
household head. The household head characteristics can represent for the overall
subjective well-being of the whole household. This may come from the reason that
household heads live largely under the same conditions as other members in the
household (Bookwalter et al. 2006). So, most of variables in the model of the thesis are of
the household head.

2.1.2 Assessment of economic theoretical approaches
First of all, economic theories applied for the thesis are critically presented. Many
economic theories are used for studying of homeownership such as making the tenure
decision that involves investment (Hood 1999; Leppel 2007), especially investment in
education (Hood 1999) and consumption of a household (Leppel 2007). In addition,
employment also affects on homeownership probability that is related to economic

7


performance (Sinning 2006). Furthermore, immigration characteristics (such as skills,
wages and so on) are analyzed which these factors, in tum, influence homeownership
ability of immigrants (Coulson 1999). Therefore, the relative areas of economic theories
that mainly used for analytical framework apply the followings.
(i) The human capital investment theory
The theory of human capital investment is very useful in analyzing the household
decision on homeownership investment. Basically, human capital investment in tenn of
education attainment will influence on household eamings in the future and thus wi 11
influence homeownership decision. Moreover, theoretical approach of investment in
human capital is similar to that of investment in purchase of a house. That is costs
associated with the housing investment. These costs are directly related to the purchase of

a house such as a down payment, other costs are paid every year during the ownership
lifetime such as tax, maintenance fee and so on. But there are also benefits associated
with this investment. Benefits of homeownership include such aspects as space (rooms
and a yard) and more importantly, the pride of home owners. Another important benefit
in the homeownership is the role of equity at the end of the ownership life. That means at
the end of his ownership life an individual has a major asset, namely a house which he
may get capital gains from the investment (Hood 1999). A brief review of human capital
theory is described as follow.
According to Smith (1776), there are four types of fixed capital for a country,
including (i) machines and trade's instruments; (ii) buildings; (iii) land; and (iv) people's
abilities. The first three types have considered as physical capital and the last one is just
human capital that its characteristic is not transferable like others. At the same time, an
individual can also own these fixed capital.
Nowadays, Becker (1993) has defined human capital concept as people's
knowledge and skills which can be achieved by education and trainings. Investment in
human capital can make profit or influence on eamings because it is considered as
"physical means of production" that can make outputs increased. In other words,
investment in human capital increases the labor productivity. This leads to an increase of
income of employees. The approach is based on the cost and benefit analysis of

8


investment in human capital (such as education at high school and college, on-the-job
training for workers). The author focused on analysis of on-the-job training case that its
general results can be used to apply for other types of human capital investments. One
characteristic of this kind of investment is that expenditure (cost) on education or training
is incurred at the beginning with the expectation for returns in the future. Author shows
that, in term of investment in human capital, education is the most important because it
affects on a person's income. People make expenditure on education in order to improve

their knowledge. This will lead to an increase in the eamings of educated people.
However, some specific investments in human capital do not have effects on earning to
employees directly. This is because workers cannot get returns from this investment that
is paid by firms. In this case, firms will have gains directly. But specific investments also
benefit for workers because they create a long-term relationship between employers who
pay costs of this investment and employees who become experienced in their jobs. This
leads to lower unemployment among skilled workers than unskilled ones. That means
skilled workers have stable jobs that stabilizes their annual incomes.
Becker (1993) also asserts that the effect of human capital on earnings is different
from person to person. It depends on the age of individuals who invested in human
capital. According to age-earnings profiles, highly educated persons (college graduates
and higher education) and less educated persons (high school or elementary school
graduates) have the same characteristic of positive relationship between earnings and age.
But the average rate of increase in earnings is positive relationship to education. This
implies that college graduates have the higher average rate of increase in earning than
high school graduates. In summary, the investment in education will increase individual's
mcomes.
McConnell and Brue (1995) have applied microeconomics and macroeconomics
theories to describe labor markets under the economic perspective. Choice theory is used
in labor economics to explain behavior of individuals that takes part in the labor market.
One of assumptions of this approach is that individuals make choices today with an
expectation of net gain in the future. In the labor market, there is the difference in wage
between skillful and unskillful workers. Therefore, employees need to improve their
labor quality. This leads to invest in human capital in which education is a right choice.
9


Consequently, educated persons earn higher income as compared to less educated people.
High educated persons also work hard because they think that it is a waste money and
time of their investment if they do not work.

It is important to say that, investment m education yields higher return to

individuals, which in turn, he is able to purchase a house for accommodation.
(ii) The decision making of a household on consumption, tenure choice

decision in homeownership and consumer theory for durable goods
Before going further into the tenure choice of households in homeownership, the
decision making of a household firstly assesses.
Economics classifies expenditures into two types. They are investment and
consumption. Investment expenditures make people expect an increased return in the
future. Whereas, consumption expenditures make people benefit in fom1 of utility
immediately (Smith 2003).
Neoclassical economics identifies goods as normal, inferior and neutral goods. As
income increases, the demand for normal goods increases and the demand for inferior
goods decreases. For neutral goods, the demand is unchanged as income change (Begg et
al. 2003). Since houses are durable goods. They can be considered as normal goods. So
the demand for houses increases as incomes increase. That is to say homeownership
probability is likely to increases as household income increases.
As mention above, a household is a unit of analysis in the thesis. So "whenever
economic units are not individual people, a question always arises as to how they make
decision" (Himmelweit et al. 2001). However, Samuelson (1956) considers household's
decision making as a special case when a collective of members with different individual
preferences make decisions as if they had a same preference. A household utility
function, accordingly, is the result of a consistent family consensus. This represents a
meeting of minds or a compromise between household members. Author assumes the
existence of a household welfare function to be maximized as a whole, with the level of
household income given. Simultaneously, it also maximizes the utility of all household
members.

10

Looking from a different perspective, Gary Becker, one of the founders of the New
Household Economics, argued that a household consensus does not resolve the problem
of how different preferences among household members. The author's analysis
overcomes this problem of reconciling different preferences by showing how all
members preferences of a household could be determined by the preferences of just one
member, the household head (Himmelweit et al. 2001). This means the household head's
preferences effectively became the preferences of the household as a whole. This theory
indicates the importance of the head in the household's decision making. The
characteristics of the household head, therefore, are taken into account when examining
determinants of homeownership.
Furthermore, Himmelweit et al. (2001) analyzes a "gender and power in Becker's
model". Authors mention about the head of household who may be a man or a woman.
Normally, there are two parents with opposite sex and their children in the household.
Becker develops a model based on an implicit conception of gender relations in which
author thought that a man is decision maker. The reason is that "men were more likely to
specialize in work market and thus contribute more income than home time to the
household". This implies that men have a comparative advantage in the labor market and
mainly contribute to households. Other significant characteristics of men are "altruistic
and redistribute towards other members of their families". That is why they have power
in decision making of households. Contrary to men, women have the following
characteristics: (1) A comparative advantage in the non- market work; (2) A less
contribution to household; (3) A beneficiary of men's altruism; and (4) No power in
decision making of the household. These assumptions can be used for many criticisms. If
taking account of time as money, it is not clear that contributions of men are the most
importance to households. Because many women have full time jobs but they still do a lot
of domestic works as well as the feeding and care of children. Thus it is worth to take the
affect of gender in examining.
In order to analyze decisions made within households, the New Household

Economics assumes that "the household behave as if it had a single utility function." This
implies that there are more benefits from living together than living alone between
household members. Consequently, there are generally gains from co-operative decision
11


within the household. That is reason why people stay together in households. It is to say
that household size is important to be considered in the model concerned to households as
the whole. In addition, households have to make decisions that are related to the
allocation not only of their members' labor but also of consumption of goods.
Households put resources (such as material, human, income, wealth) together in order to
support people day-to- day living in the family and improve their welfare. Authors also
introduce two bargaining models of household decision making. They are divorce threat
model and separate sphere model. These models focus on the decision making that would
fare if the marriage break down and the couple divorce or the partners separately choose
how much to contribute from their own gender-specific sphere. This means the marital
status has effects on household decision making.
In summary, households include many individuals that have different sex and ages.
The power over decision making is not equal between households' members. Most of the
model of household decision making contain conception of gender that implies
distinguishes men and women as well as their power within the household. If considering
the household as a family consensus or as the dictatorship of a household head, the
household is a unit of analysis and household head characteristics should be concentrated
the study on the probability ofhomeownership for households.
The tenure decision involves both investment and consumption components. In this
thesis, it implies that households choose between owning and renting a house. It deals
with investment and consumption demand of the household. If investment demand is
greater than consumption demand then the household decides to own a home. Otherwise,
if investment demand is lower than consumption demand then the household decides to
rent a house (Leppel 2007). Clearly, households' decisions about housing are the result of

a behavior of investment or consumption on housing. As an accommodation satisfies,
consumption is need. As a patrimonial asset, investment is considered (Arrondel &
Lefebvre 2001).
Consumer theory for durable goods
Durable goods play an important role in microeconomic analysis that involves
durability choice of consumers. The demand for durable goods has characteristics such as

12


(i) distinction ofpurchase (adding to stock) and consumption (physical deterioration); (ii)
the purchasing decision based on the new information; (iii) Consumer confidence and
income are the major determinants of purchases; (iv) the decision whether to buy or not is
a choice between two discrete alternatives (Deaton & Muellbauer 1980).
According to Glasner (1997), durable goods provide useful services to consumers
for a long period of time. Normally, purchase of durable goods has stronger fluctuation
on consumer spending than other consumer outlays. With the viewpoint of spending on
durable goods as the form of saving, the purchase of durable goods does not make
decrease in net worth of consumers by the full amount of the purchase price. The reason
is that the durable goods may become assets of consumers after buying. Therefore,
durable goods represents requirement of future consumption in which income may affect
on durables spending.
Deaton and Muellbauer (1980) argued that consumer behavior in expenditure of
durable goods depends on economic variables such as credit. The credit restrictions are
likely to affect through the stock adjustment process. If consumers expect that the price
of durable goods will increase then they should buy now to make the big capital gain. But
consumers will not be taken this opportunity if they do not have enough liquid financial
assets. In addition, employment also has effect on demand for durable goods. In the case
of high unemployment, durables purchases have been postponed.
In summary, the demand for durable goods depends on preferences, assets, income

and expectation in which every household is different. Thus different households will
have different behaviors in durables demand.
(iii) Employment

Unemployment is one of major macroeconomic variables that reflect the
performance of an economy as described in the book "Macroeconomics" written by
Blanchard (2005). Author argues that if high unemployment happens, then (i) increases
the probability of workers losing their jobs; (ii) reduces the probability of the
unemployed finding a job and (iii) increases the duration ofunemployment.

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Real wage, W IP

ws

1

PS

1+ ,Li

Employment, N

Figure 2.1: Wage and price setting and the natural level of employment
Source: Macroeconomics (Blanchard 2005).
As shown in Figure 2.1, employment N is measured on the horizontal axis. The
level of employment must be somewhere between zero and the labor force L. For any
employment level N, unemployment is U =L-N.

As the level of employment increases, the real wage paid to workers increases. So
their incomes increase as well.
Furthermore, there are a lot of studies that recogmze the negative impacts of
unemployment on workers' well-being. Employment provides not only material needs for
the daily life but also various psychosocial benefits through functions such as (i) by
imposing time structure on the working day; (ii) by implying regularly shared
experiences and contacts with people outside the family; (iii) by connecting individuals to
goals and purposes that transcend their own; and (iv) by defining aspects of personal
status and identity, and 5) by enforcing activity (Jahoda, 1981).
Oliver and Shapiro (1995), in their analysis of both income and its translation into
stable assets such as homes, cars and financial assets, show that work stability is very

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important for the wealth accumulation capacities of people. They also argue that work
instability has a greater effect on increasing assets than it does on relative income. But, in
analyzing household in term of the socio- economic characteristics of the household like
employment status, it is difficult to realize earnings of the household (Hsia & Chau
1978).
In summary, employment has a further positive effect on household income, which
m tum, to final demand of the household such as increasing opportunities to
homeownership.
(iv) Immigration
Finally, immigration characteristics that explain about immigrant's income,
education and so on are described in the book "Immigration, Trade, and the Labor
Market" edited by Abowd and Freeman (1991) is to analyze opportunities of
homeownership for immigrants.
In immigration studies, there are many approaches to research. The first approach is
the study of labor, goods and capital. The second focuses on demographic that studies

about the immigrant share of the labor force and the increase in the labor market. The
third one is related to trade that focuses on the balance of payments. The last approach
concerns on finance that considers the capital mobility (Abowd & Freeman 1991 ). In the
context of thesis, immigrants' characteristics such as education, age, marital status,
employment are focused.
According to Becker (1993), investment in human capital is closely related to
education and training. However, McConnell and Brue (1995) have developed the
concept of investment in human capital as migration. A cost-benefit analysis approach is
used to examine the migration. A person will decide to migrate if the net present value of
migration is greater than zero. There are many factors that determine the migration such
as age, marital status, education, unemployment rate, and so on.
- The migration of older people seldom occurs because it is difficult for the older
individual to find a new job with which a large cost of investment in human capital is

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compensated. On the contrary, younger people are more likely to migrate because they
would like to have a suitable job with their human capital investment.
- Persons who get married are less likely to migrate because spouse may have a
high salary job at living place. In addition, if the whole family wants to migrate then the
cost of migration may be higher than the benefit. This leads to a negativity of the net
present value of migration.
- For education, the highly educated people are more likely to migrate because (i)
they can get more opportunities for good jobs that make the higher gain from migration
and (ii) the labor market for them is on the national range rather than local.
- Households with more unemployed members are preferred to move out of their
original location. In addition, people will intend to migrate more if unemployment rate at
their living place is high.
With these characteristics, immigrants have lower homeownership rates than native

households and that the homeownership gap widened significantly (B01jas 2002).

Conclusions of assessment of economic theoretical approaches
Homeownership is really important for households because of its beneftts.
Households have to make decisions that involve tenure choice between investment
(owning of houses) and consumption (renting of houses). Various approaches have
different assumptions but they are applicable to the study. These are human capital
theory, households' decision making and immigration approaches. They all are related to
gender, age-earnings profile, education, marriage and etc that is really appropriate for the
study.

2.2

Empirical studies
In this section, various empirical studies on homeownership are examined from the

perspective of assessments about methodology and data used. Simultaneously, findings
and situations of empirical studies are essential assessments that might be using for the
thesis.
The dependent variable is the probability of homeownership that involves who
owns a house and who does not own a house. A household would prefer owning a house
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