The Honteownership Attainntent of Lntntigrants in the Uk

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Utilizing data from the British Labour Force Survey (1990, 2000 and 2010), this paper is the first attempt to explore the homeownership attainment of immigrants in the United Kingdom. The purpose of this study is to provide answers to the following questions: (1) What are the determinants of homeownership attainment among the immigrant population? (2) Are[pic 7]

3 “Focus on Ethnicity and Identity”, the Office for National Statistics, (2006)

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immigrants better off in terms of homeownership attainment comparing to the native population? (3) Does a homeownership gap exist between the immigrant and native groups, and what are the possible explanatory factors behind it? Answers to these questions may provide useful guidance for the implementation of UK immigration policies.

This paper is organized as the following: The next section provides a theoretical discussion of the determinants of homeownership. Section 3 reviews empirical evidences from past literatures, as well as the methodologies used by previous researchers. Section 4 introduces the data source of this study, and provides some descriptive evidence to support the empirical analysis. Section 5 introduces the estimation strategy and reports results of empirical estimations. The final section will provide a brief summary and some conclusion remarks.

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Determinants of Homeownership: Theoretical Consideration

A house is likely to be the most expensive single purchase made by households and paying for it is likely to cost most of buyer’s working life. As a result, it is not surprising that a range of factors enter a household’s utility function when pursuing homeownership. Balakrishnan and Wu (1992) identify two broad sets of factors associated with homeownership; these are demographic and social-economic factors.

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Demographic Determinants of Homeownership

Age, household composition and marital status are the main demographic factors associated with the rate of homeownership. There is a significant positive relationship between age of household and homeownership. This is because elders are more likely to have greater income and capital to purchase houses. The rate of homeownership tends to increase along the adult age continuum, leveling off in middle age, and then declines marginally among the elderly over 65 years old.

Married couples are much more likely to be homeowners, as marriage relaxes the financial constraints that the spouses would face separately, as well as provides incentives for the accumulation of assets co-owned by the couple (Lupton and Smith 2003). Moreover, unlike in other types of living arrangements, there are legal provisions that protect each spouse’s property right in the eventuality of a marital dissolution (Serpa 2009).

Family formation, a likely outcome of marriage, should further induce the acquisition of a dwelling (Goodman 1990). These occurred because the presence of children under 18 years old raises the demand of parents for better housing services, for example, greater space, more secured environment, proximity to schools and parks. These needs are expected to be better served in the homeowner market, since its housing quality is usually better than that of the rental market (Kain and Quigley 1975, Mulder and Wagner 1998).

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However, previous research suggests that the relative importance of these demographic factors is shifting due to the change in economic fundamentals, especially for households with low education/skill level. Gyourko and Linneman (1996) found that during the 1980s the trend of increased ownership among younger households began to reverse itself, so that by 1990, homeownership among households under the age of 35 had reverted to pre-1960 levels. Traditionally influential demographic variables, such as marital status and household composition, remain important but their influence on homeownership has also declined over time. For example, the homeownership among single, well-educated individuals has increased dramatically between 1960 and 1990, reflecting both important changes in the labour market and the affordability of housing.

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Socio-economic Determinants of Homeownership

Socio-economic factors such as education attainment, occupation and financial status indicate an individual’s social status and therefore have strong influence over the rate of homeownership.

A sizable downpayment and stable future income flows are usually prerequisites for house purchasing; therefore household’s financial status influences the probability of homeownership. Ray (2010) indicated that higher earnings tend to encourage men to become homeowners, while women are much more likely to be renters, even if they are single parents, due to affordability constraints.

Education raises the probability of homeownership in two ways: by improving the economic status of the immigrant and by increasing his/her consumption efficiency. Higher level of education enables immigrants to obtain higher-paying employment opportunities, and consequently improves the immigrants’ financial capacity to afford housing. However, as pointed out by Chiswick (2000), the influence of education or skill level on financial status is not uniform for all individuals. For instance, the homeownership probability may be greater for a doctor than for a lawyer, since the former is more likely to apply his/her skills in the

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destination country whereas the latter need to adapt to difference in legal systems after relocation. Nevertheless, even after controlling for financial status, education should still have a positive impact on homeownership. This is because education level enhances consumption efficiency. With greater level of education, consumers can allocate financial resources more efficiently over their consumption bundles; thus be able to achieve a higher level of utility with the same level of income. Housing services of course, is the major form of consumption and therefore will be strongly influenced by individual’s education