As part of IFMR Finance Foundation’s “Notes on the Indian Financial System” research series, Anand Sahasranaman, Vishnu Prasad & Aditi Balachander, have authored the latest research note on “Simulating Housing Choice for Low-Income Urban Households”.
It has been argued theoretically that the nature of risks confronting low-income households – income volatility, wealth allocation and the need for mobility – makes them unsuited to mortgage-based ownership housing. Testing this theory by mathematically simulating the effect of these risks on the wealth of a stylised urban low-income household over a twenty year period, we find that rental housing minimises the risk of undesirable wealth fluctuations of the households and is a much more appropriate housing proposition for low-income households, thus corroborating the theoretical arguments. In view of our results, we believe that the policy environment must incentivise the creation of rental housing solutions for low-income households.
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Professor Jonathan Morduch shared this Quora thread on this discussion in the US context: https://www.quora.com/What-do-economists-think-about-buying-vs-renting-a-house/answer/Alex-Tabarrok?__snids__=1540956396&__nsrc__=2