The impact of the cost of car ownership on house price gradient in Singapore

• Main Authors: HUANG, Naqun, LI, Jing, ROSS, Amanda
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Vehicle ownership restraint; Certificate of Entitlement (COE) price; COE quota; housing price gradient; Singapore; Asian Studies; Finance; Income Distribution; Real Estate; Transportation
• Online Access: https://ink.library.smu.edu.sg/soe_research/2024; https://ink.library.smu.edu.sg/context/soe_research/article/3023/viewcontent/Huang_Li_Ross.pdf
• Institution: Singapore Management University

This paper examines the extent to which a change in the cost of car ownership affects the house price gradient with respect to distance from the central business district (CBD). Theory suggests that if the cost of car ownership increases, then people will shift towards other modes of transportation, thus reducing house prices farther away from the CBD. However, the cost of car ownership is likely to be endogenous and correlated with various unobserved factors that also contribute to a change in the house price gradient. To obtain causal effects, we exploit a unique feature of Singapore’s car registration process. All cars in Singapore must have a Certificate of Entitlement (COE), but the number available is restricted based on the traffic concerns of the government and are allocated through a competitive bidding process. We use the number of COEs available each quarter as an instrument for the price of a COE, as the quota is likely to be correlated with the price of the COE but not the price of housing at various distances from the city center. We find that when the price of a COE increases, the price of housing closer to the city center increases, suggesting that increases in the price of a car cause individuals to increase their willingness to pay to locate closer to the CBD.