Determinants of homeownership in vietnam

UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR MA 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 TRlJ'd NG DAI HOC KI NH TE TP.HCI/I JJ$£f VI(EN HO CHI MINH CITY, DECEMBER 2009 UNIVERSITY OF INSTITUTE OF SOCIAL STUDIES ECONOMICS HO CHI MINH THE HAGUE CITY THE NETHERLANDS VIETNAM VIETNAM - NETHERLANDS PROGRAMME FOR MA IN DEVELOPMENT ECONOMICS Determinants of Homeownership in Vietnam A thesis submitted in partial fulfilment of the requirements for the degiee of MASTER OF ARTS IN DEVELOPMENT ECONOMICS Academic Supervisor: DR HA THUC VIEN Studeit: 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 toe on data processing for the thesis I would 1il‹e 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 iii Development Economics’ staff and classmates are fully aclcnowledged 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 worl‹, 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 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 pei’centage of households that own private houses is increasing yeai to year Furtlieiarioie, 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 of homeownership 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 num1›er of members and assets of the household are statistically significant effect on the piobabil ity of homeownership Also, age and gender of the household heads are found to be significantly correlated its homeownership However, iriarital status and education attainment of the head are insignificant Other determinants are social-economic characteristics such as credit assistant program, immigration and employirient The result is that, immigration and employment have significant effects on homeowner ship probability, excluding credit assistant programs TABLE OF CONTENTS PAGE ACKNOWLEDGEMEN DECLARA ABSTRA TABLE OF CONTENTS I× LIST OF TABLES vi LIST OF ABBREVIATIONS AND GLOSSARIES BOXE .×II CHAPTER I: INTRODUCTION 1.1 Problem statement 1.2 Objective of study 1.3 Research questions ,3 1.4 Research methodology and scope of research 1.5 Stmctureofthesis CHAPTER II: LITERATURE REVIEW 2.1 Theoretical literature , , 1.1 Basic terms and concepts .5 2.1.2 Assessment of economic theoietical approaches .7 2.2 Empirical studies 16 CHAPTER III: RESEARCH METHODOLOGY 21 3.1 Analytical frameworl‹ 21 3.1.1 Qualitative choice models for duiable goods 21 1.2 Methods of homeownership research 22 3.1.3 Major determinants of homeownership .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 of homeownership in Vietnam .35 4.2 Changing in housing policies 39 4.3 Challenges of homeownership 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 of homeownership 49 5.3 Logistic regression results .50 5.4 Measurement of goodness-of-fit 52 5.5 Result interpretation 5.6 Summary 56 CHAPTER VI: CONCLUSIONS AND POLICY IMPLICATIONS 58 6.1 Conclusions , 58 6.2 Policy implications , 59 REFERENCES 60 APPENDIX 65 LIST OF TABLE Table 1: Variable descriptions 34 Table 1: Mean of determinants of homeownerslii p Table 4.2: Group of determinants by binary characteristics 38 LIST OF FIGURES Figure 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 worl‹er accommodations 46 ABBREVIATIONS AND GLOSSARIES FMO The entrepreneurial development baul‹ of the Netherlands GEN : Gender HCMC : Ho Chi Minh City HHINC : Household income HHSIZE : Household size IMMI Immigration LA Lost Logit Angeles NLSY Logistic National Longitudinal Survey of Youth PUMS Price setting Public Use Micro-data Sample STATA : Statistics/Data Analysis US : United States UNDP : United Nations Development Program VHLSS : Vietnam Household Living Stau dai’d Siiivey Wage setting :Wor1d-Trade-Organization CHAPTER I INTRODUCTION 1.1 Problem statement Vietnam is a transition economy that has changed from a centrally planned economy to a inar1‹et economy Over last two decades, Vietnam has increasingly integrated into the larger world of economies Particulaily, 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 ei a of development, industrialization, modernization and urbanization Together with development process, economic giowth 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 (Mizuiio & Isliigami 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 Vietnaiiiese people (Geertman 2003) In according with economic growth, hoirieownership 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, hoineownership also increases local community stability and commitment in malting a choice to I ive in w1lGl'é a household owns a house (Ratledge 1999) As a result, homeownersliip increases the deiriogi apla y stability in comparison with house renters that often change their accom inodatiotis (Dietz Homeownership | Coef Std Err z P>|z| Marginal effect (e ") lnHHINC | 1754409 0718569 2.44 0.015 1.19 HHSIZE | 1902853 0468842 4.06 0.000 1.21 ASSET | 53e-06 1.62e-06 18 0.029 AGE | 0297292 0040295 7.38 0.000 1.03 GEN | 3028046 1177138 2.57 0.010 1.35 IMMI | -1.598311 5983002 -2.67 0.008 0.2 EMPL | 3162065 0442301 7.15 0.000 1.37 cons | -1.765002 7288455 -2.42 0.015 17 From the regression iesult, most of the coefficients signs are consistent with the expected signs All of independent variables have positive effects on homeownership except immigration that has the negative influence Especially, the most statistically significant variables are household size, age of the household head and the iiuiri1›ei’ of people worl‹ing in the household In the intcipretation of regression i‘esult by iriai giiial effect, one variable is explained by lceepiilg others constant This applies for interpretation of all coefficients as the following The natiiial logarithm of total income of the household per yeai has effect on the favor of liomeownership in which one percent increase in total income of the household per year leads to an increase in the odds of lioineownersliip by 1.19 times It implies that the household is more likely to increase the favor of homeowneiship by 19 percent if their total income per year increases by percent Similar ly, household size has also influence on the favor of lioiiieowiiei ship By increasing by person, the odds of homeowneiship increases by 1.21 times That weans 54 if the household has one more person, their favoi of homeowneiship will increase 21 percent The total value of fixed assets of the household is less lilcely to affect on the favor of homeowneiship When fixed assets value increases l›y thousands Dong, the odds of homeownersliip not increase It implies that the favoi of homeowneiship of the household is less likely to be effected by their assets Age of the household head has less effect on the favoi of hoirieownership as well If age of the household head increases by year, the odds of homeownership increase by 1.03 times In other word, the favor of homeownership will increase percent when age of the household head increases by year The gender of the household head has irioie influence on the favor of homeowiiership Male household heads are more li1‹ely to be favor of hoineownership by 1.35 times (or 35 percent) than female household heads Imiriigration has a negative effect on hoirieownership Tue household heads that ai’e not registered as permanent residence are less lilcely to own a house by 80 percent than those who are permanent residence In othei words, the favor of homeowneiship of immigrant households is less than that of local households by 80 percent The number of persons worming in the houseliolcl has stiong Gffect on the favoi of homeownership If the household iiicieases peison who is woi’1‹iilg foi wage, salary and production/service in agriculture, forestry, aquaculture then the favoi of homeowneiship will increases by 1.37 times or 37 percent Besides statistical significance of explained vaiiables, theie are three oiii itted variables (MARITAL, EDU and CRED) that are not statistical significance at 5%« level in the unrestricted model that is explained as the follow For MARITAL variable, the possible reason is that in developing country li1‹e Vietnam, people often get marriage soon At that time, couples are still young that there is not sufficient financial resource for purchasing their own house In addition, as 11 eoi y suggested, the youth is difficult to earn high income because of théll‘ GXQG rielJCG Consequently, young couples often live together with their parents or rent a house as a temporary solution for accommodation About education attainment of household head (EDU vai’iab1e), it is not statistically significant at the level of 5% because VHLSS 2006 found that the rate of people who have no qualifications or never go to school of population is rather nigh lii particularly, the poorest without any diploma was 38% while it was around 10.9% for the richest This implies that the well educated people in Vietnam are iatliei low In the iegiessiou running data set, there are only 4.53% of people who get college, university or doctor diploma In addition, there may be no guarantee for getting a good job with high salary for people who graduated This affects on high educated people’s earnings which, in tuin, limit the ability of buying a house The last statistically insignificant is CRED variable In 2006, 90%» of poor households selected by localities benefited from the government project/policy piogi ams In the period 2004-2006, nearly 40% households had loans or owed money in which there is 19% for improving houses and living conditions But the higher percentage of loans for house and living conditions impiovenaent was seen in households with higher income (VHLSS 2006) That weans the poor is rather difficult iii teaching programs because of poor administration and corruption That leads to inefficiency of pioject/ policy programs As the result, pooi households caruiot inipi eve their living conditions through hoiueownership 5.6 Summary ThG regression result indicates that all significant deteiiiiinants of la oiriGOWiiersliip include household characteristics such as total income pei year, the number of people and assets of the household All of them have positive effects on homeownei snip and consistent with the expected signs as proposed in Chapter III - Research methodology For characteristics of the household head, age and gentler have positively significatit effects on the probability of homeowneiship as theories and Ginpii ical foulid out, while the marital status and education attainment are not statistically significant at tlic ie ²e1 of percent Moreover, credit assistant piogiam is insignificantly correliltGd with homeownership Marital status, education and ciedit are not consistGnt with theories and empirical studies as stated in Chapter III The reasons are more li1‹el y to be a specIfiC situation of Vietnam as the above explanation Furthermore, immigration and employment are found as stiongly impacted factoi’s on the favor of liomeownership Immigration has a negative effect as expected and employment has the strongest influence on the favor of lioineownei’s1iip in term of marginal effect with the same sign as expectation CHAPTER VI CONCLUSIONS AND POLICY IMPLICATIONS 6.1 Conclusions This study aimed at examining determinants of homeownership of households in Vietnam on the basic of VHLSS 2006 The estimation results are consistent with the findings of empii ical studies and theory Specifically, all vat iables of household characteristics such as the total income per year of the households, household size and assets are significant and positive factors For household head’s characteristics, age and gender of household heads are significatitly and positively correlated with the liomeowiiership while marital status and education attainment are insignificant The insignificance of marital status is i ecognizcd that buying a house is not a normal consumption; it does need the big financial i esource This may create difficulties in homeownership foi youth man red couplcs because of their limitation in accumulated assets But they can live together with their parents or renting a house Even though they can own a house since their parent supports This is why marital status is not significant factoi The study is also found that education is not a iriajoi determinant of homeownersliip because of sti i1‹ing reasons First, Vietnam is used to be the poor country that has the low iate of nigh education This has lGd IO lOW G8laiings Second, iti the case of people who get high education, they not always nave higher earnings because of unfair income distribution in society ThéSé reasons iiialté Gducated people trouble in budget constraints for homeowneiship But they still maybe own a house because of othei reasons such as heritage, support of the relatives and etc In term of social-economic characteristics, iiriniigiation and employment variables are significant and positive factors But credit assistant is insignificant bt2GatlSG Of poot administration and corruption in policy progiaiiis From the result of regression, it is recognized that employment has strong effect on homeownei ship This is the answei’ for the reseaich question: Does the employment really affect on lioirieowiiei ship pi’obabi1ity? The study is also found that there is a big gap between immigrants and local citizens in 58 the probability of homeownership iii which the immigrant households meet with scrious difficulties in ownership that the last research question deals with Limitation and further research However, the regression result of the study shows that the goodness of fit of the model is rather low Only percent of the total variance in homeowneiship probability is explained by all independent variables There are two main reasons that affect on the goodness of fit First, the bias of data set that is presented above in Section Second is the lac1‹ of independent variables in the model This limitation may be a chance for further research For example, some independent variables may be ad‹1ed into the model such as location (urban or rural) because of big different in costs of mouses For further research, by using the results of this study, a reseaich about effects of detGiniinants of homeownership on the housing marl‹et iriay be done 6.2 Policy implications Immigration and employment are found to be significant deteiminants of the homeownership probability that the study concerns Therefore, some policy i=i» 1ications are suggested as the followings - There is a wide gap in the homeowneiship probability between local i’esidcnces and immigrant population The honieownership iate of imiriigiant population is 80% less than that of local citizens Thus, policies improving the access of immigrant population to homeownership should be adopted iii order to reduce the homeowneiship gap - The most important deteiminant of homeownersliip is employment Tlic study indicates that, 1‹eep other variables constant, if the household inci‘eases by peison who is woil‹ing for wage, salary and pro‹tuction/service in agriculture, foiestry, ac|iiactiltrii e then the favor hoim eownersliip will inci eases by 1.37 times or 37 percent It is ieally a crucial factor on the probability of lioiiieowilersliip Therefore, job-creation policies have been effective in increasing the probability of homeownei ship REFERENCES Abowd, J.M & Freeman, R.B., 1991 Immigration, Tracle, ancl the Labor Marl‹ct Chicago: The Univeisity of Chicago Press Arrondel, L & Lefebvre, B 2001 Consumption and Investment Motives in HousiigWealth Accumulation A French Study Jowrnri/ o[ UI bCfn Economics 0, j› I 2137 Becher, G S., 1993 /7uma n Capital.‘ A Theoretical ancl Empirical Arialysis, v•itli Special Reference to Eclucation 3rd ed Chicago: University of Chicago Press h Begg et al 2003 Economics The 7' edition The McGiawhill Companies, Inc Blanchard, 0., 2005 Macroecolioinics International, Inc Tue 4"' edition London: Pi’entice Hair Bookwalter, J T., Fuller, B S., Dalenbei g, D R., 2006 Do household heads speal‹ for the household? 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I 508.0685 Iteration 6: log likelihood = -1508.0685 Logistic regression Number of obs = Log 1i1‹elihood = -1508.0685 Homeownership | Coef 9189 LR c1ii2(10) = 230.25 Prob > chi2 = 0.0000 Pseudo R2 — 0.0709 Std Err z P>|z| [95% Conf Jiitei val] IIlHHINC | 2095934 0758385 2.76 0.006 0609527 3582341 HHSIZE | 1709471 0482207 3.55 0.000 0764363 2654579 ASSET | 3.39e-06 1.60e-06 12 0.034 2.58e-07 6.52e-06 AGE | 0292747 0041242 10 0.000 0211915 0373579 MARITAL | 1648587 1884519 0.87 0.382 -.2045002 5342176 GEN | 2814768 1213494 2.32 0.020 0436364 5193172 EDU | -.3153914 -1.37 171 -.7668258 1360471 CRED | 1684577 2500987 0.67 0.501 -.3217267 6586421 IMMI | -1.606352 6005831 -2.67 0.007 -2.783473 -.4292307 EMPL | 3144994 0443521 2275709 cons | -2 137097 7615975 -2.81 0.005 23033 7.09 0.000 *Note: failures and success completely determined .4014279 -3.629801 -.6443937 Dropping EDU variable logit Homeownership lnHHINC HHSIZE ASSET AGE MARITAL CRED IMMI EMPL GEN Iteration 0: log likelihood = -1623 191 Iteration 1: log lil‹e1ihood = -1547.621 Iteration 2: log likelihood = -1512.1907 Iteration 3: log likelihood = -1509.3763 Iteration 4: log li1‹e1ihood — -1508.9499 Iteration 5: log 1il‹e1ihood — -1508.947 Iteration 6: log 1il‹elihood = -1508.947 Logistic regression Number of obs = Log likelihood — -1508.947 Homeownership | Coef 91 89 LR chi2(9) = 228.49 Prob > chi2 — 0.0000 Pseudo R2 = 0.0704 Std Err z P>|z| [95% Conf IntGrvaJ ] I: JHINC | 1823086 0734559 2.48 0.013 0383378 3262795 HHSIZE | 1782762 0479696 3.72 0.000 0842576 2722948 ASSET | 3.53e-06 18 0.029 3.59e-07 6.70e-06i | 0292233 0041235 7.09 0.000 0211413 0373052 MARITAL | 1679746 1885102 0.89 0.373 -.2014986 5374478 AGE I 62e-06 GEN | 2801263 1213951 2.31 0.021 0421963 5180563 CRED | 667903 2501114 0.67 0.505 -.3234191 6569997 IMMI | -1.57542 6004698 -2.62 0.009 -2.75232 -.3985212 EMPL | 3137405 044225 0.000 2270611 40042 cons | -1.908292 7457426 -2.56 0.010 -3.36992 -.446663 7.09 *Note: failuies and success completely detei’niiiied Dropping CRED vai iable logit Homeownership lnHHINC HHSIZE ASSET AGE MARITAL GEN IMMI EMPL Iteration 0: log likelihood — -1623.191 Iteration 1: log lil‹e1ihood = -1547.7189 Iteration 2: log 1i1‹e1ihood — -1512.4073 Itei’ation 3: log lil‹e1ihood — -1509.5996 Iteration 4: log lil‹elihood = -1509.181 Iteration 5: log 1i1‹elihood = -1509.1782 Iteration 6: log likelihood = -1509.1782 Logistic regression Log li1‹elihood = -1509 782 Homeownership | Coef Number of obs = 9189 LR chi2(8) — 228.03 Prob > chi2 = 0.0000 Pseudo R2 = 0.0702 Std Err z P>|z| [95% Conf Inteivxl] 1»HHINC | 1719381 0720449 2.39 0.017 0307327 3131435 HHSIZE | 1809984 0478379 3.78 0.000 0872378 2747589 ASSET | 3.51e-06 1.61e-06 2.18 0.029 3.51e-07 6.68G- AGE | 0290185 0041123 7.06 0.000 0209585 0370786 MARITAL | 167101 1885047 0.89 0.375 -.2023614 5365635 GEN | 2780881 1213577 2.29 0.022 0402314 5159448 IMMI | -1.579733 600712 -2.63 0.009 -2.757107 -.4023592 EMPL | 3151718 0442138 13 0.000 2285143 cons | -1.796859 7292006 -2.46 0.014 4018294 -3.226066 -.3676517 *Note: failures and success completely determined 67 Dropping MARITAL logit Homeownership lnHHINC HHSIZE ASSET AGE GEN IMMI EMPL Iteration 0: log likelihood = -1623.191 Iteration 1: log lil‹elihood = -1541.0462 Iteration 2: log lilcelihood = -1512.7322 Iteration 3: log likelihood = -1510.2637 Iteration 4: log likelihood = -1509.5683 Iteration 5: log lilcelihood = -1509.5625 Iteration 6: log 1il‹e1ihood = -1509.5625 Logistic regression Log likelihood = -1509.5625 Homeownership | Coef Number of obs — 9189 LR chi2(7) = 227.26 Prob = 0.0000 = 0.0700 chi2 Pseudo R2 Std Err z P>|z| [95% Conf Interval] lnHHINC | 1754409 0718569 2.44 0.015 0346039 3162779 HHSIZE | 1902853 0468842 4.06 0.000 098394 2821766 ASSET | 3.53e-06 1.62e-06 18 0.029 58e-07 6.70e-06 AGE | 0297292 0040295 7.38 0.000 021 8315 0376269 GEN | 3028046 1177138 2.57 0.010 0720898 5335194 IMMI | -1.598311 5983002 -2.67 0.008 EMPL cons 3162065 0442301 15 0.000 | -1.765002 7288455 -2.42 0.015 -2.770958 -.4256639 ,229517 402896 -3 193513 -.3364914 *Note: failures and success completely determillGd 68 ... OF HOMEOWNERSHIP AND HOUSING SECTOR IN VIETNAM .35 4.1 An overview of homeownership in Vietnam .35 4.2 Changing in housing policies 39 4.3 Challenges of homeownership in. .. hind of investment is that expenditui‘e (cost) on education or training is incurred at the beginning with the expectatioi for retuins in the future Author shows that, in term of investment in. .. of people moving to big cities ft om other pi‘ovinces for living It is, therefore, interesting to find out what factors iiiay inf luGiice the homeownership probability of every household in Vietnam