Affordable homeownership policy

Purpose Affordable homeownership is a policy that is often accorded a great deal of policy attention by governments of many countries. This paper aims to examine the market implications of setting a housing price to income ratio target for a market segment by the government. Design/methodology/approach The policy requires active intervention by the government with regard to the targeted sector. The paper uses a simple model of the housing market with a homeownership affordability target to derive the market implications of such targets. Findings In the presence of uncertainty and resource constraints, the objective of homeownership affordability is achieved for the targeted group at the expense of greater volatility in residential construction activity. When the size of the targeted sector is significant in size, there are spillover price and crowding out effects on the non‐targeted housing market segment. Research limitations/implications This results in political pressure on the government to expand homeownership affordability targets to increasing segments of the population. Housing price to income ratios tend to be fairly constant over time and across targeted groups, the housing supply is relatively price inelastic and the income elasticity of housing demand is less than one. Practical implications The Singapore government intervenes extensively in the housing sector to ensure homeownership affordability, with a resulting homeownership rate of 91 percent for the resident population. The above hypotheses regarding the implications of setting housing price to income ratio targets are tested using the Singapore housing market. Originality/value This paper adds to the literature by analyzing the market implications of setting homeownership affordability targets in the context of a targeted housing segment.