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Higher property prices linked to income inequality: study

Hassan Gholipour and colleagues write in The Conversation (22.11.16) about new research which finds that higher property prices are associated with higher household income and spending inequality.

‘Higher property prices are not only associated with higher income inequality but also with a higher inequality in household spending, our research shows. We examined three decades of data from 1982 to 2012 in Iran, where income inequality is the highest in the Middle East. We found that a 1% increase in housing costs increases income inequality by 0.125%. This is taking into account other important economic, political and social determinants of inequality (such as income per capita, inflation, government spending and the quality of political institutions). We also found that inequality of spending increases by 0.248% when housing costs are 1% higher.

‘Although our findings are based on data from Iran, this a common theme for much of the developing and developed world. For example, a similar study in Singapore shows a significant correlation between increasing private property prices and increasing income inequality.

‘Researchers in the UK also argue that increases in housing prices change the distribution of welfare towards home owners, and away from non-homeowners. Another study showed housing is driving a long-term rise in income in seven large developed economies (the United States, Japan, Germany, France, the UK, Italy, and Canada).

‘Income inequality is among the top challenges for policy makers globally. In a recent survey of 1,767 leaders from academia, business, government and non-profits, The World Economic Forum’s Global Agenda Council found increasing income inequality to be top global concern in 2015.

‘Income inequality has several harmful consequences for societies. For example, a World Bank study shows that income inequality has a significant negative effect on GDP in the long-run. Inequality has also been identified as one of the main drivers of social unrest in the Arab World, in the recent British vote to leave the European Union and in the US Presidential election.’

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