Tài liệu Determinants of homeownership in vietnam luận văn thạc sĩ

INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM VIETNAM- NETHERLANDS PROGRAMME FORMA 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 BO. GIAO DUC . £lAO T~O " TRUONG £l~l HQC KINH TE TP.HCM THUVItN ~ 31'1 HO CHI MINH CITY, DECEMBER 2009 UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FORMA 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 Academic Supervisor: DR. HA THUC VIEN Student: 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 me c:in data processing for the thesis. I would like 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 m Development Economics' staff and classmates are fully acknowledged. 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 work, 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 II 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 percentage of households that own private houses is increasing year to year. Furthennore, 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 ofhomeownership 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 number of members and assets of the household are statistically significant effect on the probability of homeownership. Also, age and gender of the household heads are found to be significantly correlated its homeownership. However, marital status and education attainment of the head are insignificant. Other dete1minants are social-economic characteristics such as credit assistant program, immigration and employment. The result is that, immigration and employment have significant effects on homeownership probability, excluding credit assistant programs. Ill TABLE OF CONTENTS PAGE ACKNOWLEDGEMENT ................................................................ i DECLARATION ........................................................................... ii ABSTRACT ................................................................................. iii TABLE OF CONTENTS ................................................................. iv LIST 0 F TABLES ......................................................................... vi LIST OF FIGURES ........................................................................vi LIST OF BOXES ....•...................................................................... vi ABBREVIATIONS AND GLOSSARIES ............................................ vii CHAPTER 1: INTRODUCTION ............................................................... 1 1.1 Problem statement ................................................................................................... 1 1.2 Objective of study ................................................................................................... 2 1.3 Research questions .......................................................................... 3 1.4 Research methodology and scope of research ........................................................ 3 1.5 Structure ofthesis ................................................................................................... 4 CHAPTER II: LITERATURE REVIEW ...................................................... 5 2.1 Theoretical literature ........................................................................ 5 2.1.1 Basic terms and concepts ........................................................................... 5 2.1.2 Assessment of economic theoretical approaches ................................... 7 2.2 Empirical studies ........................................................................... 16 CHAPTER III: RESEARCH METHODOLOGY .......................................... 21 3.1 Analytical framework .................................................................... 21 3.1.1 Qualitative choice models for durable goods ............................... 21 3 .1.2 Methods of homeownership research ....................................... 22 IV 3.1.3 Major determinants ofhomeownership ..................................... 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 ofhomeownership in Vietnam ............................................... 35 4.2 Changing in housing policies ............................................................ 39 4.3 Challenges ofhomeownership 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 ofhomeownership ...................................................... .49 5.3 Logistic regression results ..................................................................... 50 5.4 Measurement of goodness-of-fit. ......................................................... 52 5.5 Result interpretation ........................................................................ 53 5.6 Summary ..................................................................................... 56 CHAPTER VI: CONCLUSIONS AND POLICY IMPLICATIONS ................... S8 6.1 Conclusions .................................................................................. 58 6.2 Policy implications ........................................................................................ ,...... 59 REFERENCES ..................................................................................... 60 APPENDIX ......................................................................................... 65 v LIST OF TABLE Table 3.1: Variable descriptions ......................................................... 34 Table 4.1: Mean of determinants ofhomeownership ................................. 36 Table 4.2: Group of determinants by binary characteristics .......................... 38 LIST OF FIGURES Figure 2.1: 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 worker accommodations ....... .46 Vl ABBREVIATIONS AND GLOSSARIES FMO :The entrepreneurial development bank of the Netherlands GEN :Gender HCMC : Ho Chi Minh City HHINC : Household income HHSIZE : Household size IMMI :Immigration LA : Lost Angeles Logit :Logistic NLSY :National Longitudinal Survey of Youth PS : Price setting PUMS : Public Use Micro-data Sample STATA : Statistics/Data Analysis U.S :United States UNDP : United Nations Development Program VHLSS : Vietnam Household Living Standard Survey ws : Wage setting WTO :World-Trade-Organization Vll CHAPTER I INTRODUCTION 1.1 Problem statement Vietnam is a transition economy that has changed from a centrally planned economy to a market economy. Over last two decades, Vietnam has increasingly integrated into the larger world of economies. Particularly, 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 era of development, industrialization, modemization and urbanization. Together with development process, economic growth 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 (Mizuno & Ishigami 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 Vietnamese people (Geertman 2003). In according with economic growth, homeownership 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, homeownership also increases local community stability and commitment in making a choice to live in where a household owns a house (Ratledge 1999). As a result, homeownership increases the demography stability in comparison with house renters that often change their accommodations (Dietz & Haurin 2003). In "Urban Development and Housing Sector in Viet Nam" research, Mizuno and Ishigami (1999) found that households do not like to rent a house for their accommodations. It implies that Vietnamese people would like to enhance their sense of being ownership of a house. This really plays an important role in improving the quality of life for the citizens. In other words, homeownership is not only helping people have the stable accommodation, but also helping the government be easier in administration and development local communities. In order to ensure its long-term sustainable development, the local government authorities have made better activities for housing sector by enforcing the law on residential housing to support homeownership for society, especially for low income families (Ho Chi Minh City Real Estate Association 2008). However, homeownership probability of a household always varies with changes in economy and society, especially in the household characteristics such as household income, gender, marital status, education, age and household size (Hood 1999). In addition, homeownership IS associated with financial ability (such as savings, credit) of a household (Mizuno & Ishigami 1999). In addition to household characteristics, homeownership is also related to employment in which individuals would like to own a home if they can easily get jobs (Gabriel & Painter 2001) and immigration status due to its characteristics (Coulson 1999) because, nowadays, there are a lot of people moving to big cities from other provinces for living. It rs, therefore, interesting to find out what factors may influence the homeownership probability of every household in Vietnam. This plays an important role for increasing of the opportunity of homeownership that is related to individual wellbeings and development of the local communities (Cisneros 1995). 1.2 Objective of study The research objective is to examine determinants ofhomeownership ofhouseholds in Vietnam by: (i) Household characteristics: household income, household size and household assets; age, marital status, gender and level of educational attainment of the household head. 2 (ii) Socioeconomic characteristics: immigration status; credit accessibility and employment that implies the number of members working in a household. The thesis aims to establish a conceptual model for estimating the probability of homeownership on the basis of household and socioeconomic characteristics. From results of estimating, policy recommendations are suggested. The result can be useful for policy makers. They can base on the most significant determinants of homeownership to make positive policies for improving homeownership probability of households in Vietnam. 1.3 Research questions The study is to answer the following questions: (i) How do household characteristics affect on homeownership probability of households in Vietnam? (ii) How do socioeconomic characteristics affect on homeownership probability of households in Vietnam? Specifically, the thesis aims to the following questions: (i) Is the educational attainment level of the household head a mam factor of homeownership probability? (ii) Does the employment really affect on homeownership probability? (iii) Is the impact of immigration status significant on the homeownership probability? 1.4 Research methodology and scope of research In order to have the right answers for research questions, econometric model and descriptive statistic methods are used to examine the relationship between the homeownership probability and its determinants. Specifically, the thesis is based on a Logit model for estimating determinants of the homeownership probability of households and a descriptive statistics analysis about the situation ofhomeownership in Vietnam. 3 Data come from a secondary source, taken from Vietnam Household Living Standards Survey 2006 that is abbreviated to VHLSS 2006. This survey is carried out by the General Statistics Office of Vietnam, with the support of UNDP and World Bank. Data is surveyed throughout the country. As the thesis analyzes for the whole country, so the sample size will be 9,189 households throughout Vietnam extracted and regressed by STATA. 1.5 Structure of thesis Following the introduction chapter, the thesis is continued with Chapter II in which the most relevant economic theories and empirical studies to homeownership and its determinants are reviewed. An adaptation of economic theories and empirical studies to the homeownership model is analyzed. Chapter III justifies methodology that includes analytical framework and research method. In Chapter IV, an overview of homeownership is analyzed on the basic of VHLSS 2006 and housing sector development in Vietnam is presented. Model regression by econometric analysis and evaluates the results, including presentation of data set, logistic regression results and results interpretation are introduced in Chapter V. The last chapter is conclusions and policy implications. 4 CHAPTER II LITERATURE REVIEW This chapter is developed to present a relevant theories and empirical studies of this empirical work and it is divided into two sections. The first section is to review of theories that lay the theoretical foundation for this work. It is organized into two parts. The first part includes the definition of tetms and concepts related to the objects of the thesis such as home and homeownership. In addition, house is recognized as durable goods that households, as units of analysis, would like to own. The second part focuses on the assessment of economic theoretical approaches that provides a review of economic theories on human capital investment, the decision making of a household on consumption, tenure choice decision and consumer theory for durable goods. The assessment points out the roles not only of education, income and assets of the household as their common resources, but also of household head's characteristics in the decision making of household's expenditures. The decision making of the household on consumption by using their scare endowments to maximize their utility applied for homeownership. Last, but not least, the macroeconomic variables of employment and immigration are introduced by the basic characteristic of the various approaches that the thesis deals with. The second section analyzes empirical studies that can recognized more variables from the perspective of approaches, model and data used. Moreover, the major findings from different empirical studies and the most significant variables on homeownership are introduced. 2.1 Theoreticalliterature 2.1.1 Basic terms and concepts The first is the definition of home and classification of home. In the context of the thesis, home is the physical structure in which a household is living. It could be a house or an apartment. But only house is researched because this is appropriate to Vietnam 5 Household Living Standard Survey 2006 by Vietnam General Office of Statistical that defines whether the household owns a house or not. In reality, there are many different types of houses with different benefits in terms of homeownership. However, some main types of houses that the thesis deals with are based on the definition of General Statistical Office (2007) in the questionnaire of Vietnam Household Living Standards Survey 2006, included "Villas"; "Strong houses with a private kitchen and bathroom/ toilet"; "Strong houses with a shared kitchen or bathroom/ toilet"; "Semi-permanent houses"; "Shiftmade and other types of houses". These types of houses are designed for the survey by General Statistics Office that adapts to circumstances in Vietnam. The second is the definition of durable goods and consideration whether a house is durable goods. According to Smith (1776), a house is a commodity, such as clothes and household furniture that is purchased for dwelling. It is a consumption that does not make any profit or revenue but the expenditure for a house is really useful for the owner. If a house is built well and maintained carefully, it may be used for many centuries. A commodity is considered as durable goods if it is expected to be used for three years and more such as electricity equipments, household fumiture, etc. (McEachem 2006). Moreover, according to Household Living Standards Survey 2006, durables include houses, workshop, and etc. So it is important to conclude that house is considered as durable goods. The third IS the definition of homeownership and non-homeownership. Homeownership concept is owner-occupied dwelling (Leppel 2007) in where a household is living. In Vietnam, there are a lot of households own houses without any certificates issued by govemment. In the context ofthesis, homeownership is not implied by certificates issued by government, but it is based on the answer yes of question "Does your household own this residence?" (General Statistical Office 2007). Residence means one type of houses that is listed above. A household that does not own a house as mentioned above is considered as non- homeownership. That means they can rent a house or live together with parents etc. The homeownership that is only for dwelling does not make any revenue for its inhabitant but it is really useful to him. In a case of a house for 6 rent, a tenant must pay the rent to the home owner. That is to say, the homeownership can make revenue, though a house itself can produce nothing. The last is definition of household and household is considered as the unit of analysis for the study. Himmelweit et al. (1998) define: "household is a unit consisting of people with a common budget who organize some aspects of work and consumption together." This definition is appropriate to Vietnamese culture where all members live together in a family. They together make decisions about the use of their budgets of human and material resources. Another argument is that "individuals spend only their own income and spend it only on themselves. But if income is shared in households, then the person who does the family shopping is neither spending just her own income nor buying just for herself." This is a reason for choosing a household rather than individual person as the rational decision making units in the theory of New Household Economics developed by Jacob Mincer and Gary Becker. In summary, a household is recognized as the major consumption unit in many markets within a society (Schiffman et al. 2001). In addition, the data of Vietnam Household Living Standards Survey 2006 is surveyed on the basis of a household that a group of persons usually live and eat together. Therefore, household is chosen as the unit of analysis of the thesis. Furthermore, many recent household surveys are designed to ask questions to respondents in a household. But nearly all of these questions are only asked to the household head. The household head characteristics can represent for the overall subjective well-being of the whole household. This may come from the reason that household heads live largely under the same conditions as other members in the household (Bookwalter et al. 2006). So, most of variables in the model of the thesis are of the household head. 2.1.2 Assessment of economic theoretical approaches First of all, economic theories applied for the thesis are critically presented. Many economic theories are used for studying of homeownership such as making the tenure decision that involves investment (Hood 1999; Leppel 2007), especially investment in education (Hood 1999) and consumption of a household (Leppel 2007). In addition, employment also affects on homeownership probability that is related to economic 7 performance (Sinning 2006). Furthermore, immigration characteristics (such as skills, wages and so on) are analyzed which these factors, in tum, influence homeownership ability of immigrants (Coulson 1999). Therefore, the relative areas of economic theories that mainly used for analytical framework apply the followings. (i) The human capital investment theory The theory of human capital investment is very useful in analyzing the household decision on homeownership investment. Basically, human capital investment in tenn of education attainment will influence on household eamings in the future and thus wi 11 influence homeownership decision. Moreover, theoretical approach of investment in human capital is similar to that of investment in purchase of a house. That is costs associated with the housing investment. These costs are directly related to the purchase of a house such as a down payment, other costs are paid every year during the ownership lifetime such as tax, maintenance fee and so on. But there are also benefits associated with this investment. Benefits of homeownership include such aspects as space (rooms and a yard) and more importantly, the pride of home owners. Another important benefit in the homeownership is the role of equity at the end of the ownership life. That means at the end of his ownership life an individual has a major asset, namely a house which he may get capital gains from the investment (Hood 1999). A brief review of human capital theory is described as follow. According to Smith (1776), there are four types of fixed capital for a country, including (i) machines and trade's instruments; (ii) buildings; (iii) land; and (iv) people's abilities. The first three types have considered as physical capital and the last one is just human capital that its characteristic is not transferable like others. At the same time, an individual can also own these fixed capital. Nowadays, Becker (1993) has defined human capital concept as people's knowledge and skills which can be achieved by education and trainings. Investment in human capital can make profit or influence on eamings because it is considered as "physical means of production" that can make outputs increased. In other words, investment in human capital increases the labor productivity. This leads to an increase of income of employees. The approach is based on the cost and benefit analysis of 8 investment in human capital (such as education at high school and college, on-the-job training for workers). The author focused on analysis of on-the-job training case that its general results can be used to apply for other types of human capital investments. One characteristic of this kind of investment is that expenditure (cost) on education or training is incurred at the beginning with the expectation for returns in the future. Author shows that, in term of investment in human capital, education is the most important because it affects on a person's income. People make expenditure on education in order to improve their knowledge. This will lead to an increase in the eamings of educated people. However, some specific investments in human capital do not have effects on earning to employees directly. This is because workers cannot get returns from this investment that is paid by firms. In this case, firms will have gains directly. But specific investments also benefit for workers because they create a long-term relationship between employers who pay costs of this investment and employees who become experienced in their jobs. This leads to lower unemployment among skilled workers than unskilled ones. That means skilled workers have stable jobs that stabilizes their annual incomes. Becker (1993) also asserts that the effect of human capital on earnings is different from person to person. It depends on the age of individuals who invested in human capital. According to age-earnings profiles, highly educated persons (college graduates and higher education) and less educated persons (high school or elementary school graduates) have the same characteristic of positive relationship between earnings and age. But the average rate of increase in earnings is positive relationship to education. This implies that college graduates have the higher average rate of increase in earning than high school graduates. In summary, the investment in education will increase individual's mcomes. McConnell and Brue (1995) have applied microeconomics and macroeconomics theories to describe labor markets under the economic perspective. Choice theory is used in labor economics to explain behavior of individuals that takes part in the labor market. One of assumptions of this approach is that individuals make choices today with an expectation of net gain in the future. In the labor market, there is the difference in wage between skillful and unskillful workers. Therefore, employees need to improve their labor quality. This leads to invest in human capital in which education is a right choice. 9 Consequently, educated persons earn higher income as compared to less educated people. High educated persons also work hard because they think that it is a waste money and time of their investment if they do not work. It is important to say that, investment m education yields higher return to individuals, which in turn, he is able to purchase a house for accommodation. (ii) The decision making of a household on consumption, tenure choice decision in homeownership and consumer theory for durable goods Before going further into the tenure choice of households in homeownership, the decision making of a household firstly assesses. Economics classifies expenditures into two types. They are investment and consumption. Investment expenditures make people expect an increased return in the future. Whereas, consumption expenditures make people benefit in fom1 of utility immediately (Smith 2003). Neoclassical economics identifies goods as normal, inferior and neutral goods. As income increases, the demand for normal goods increases and the demand for inferior goods decreases. For neutral goods, the demand is unchanged as income change (Begg et al. 2003). Since houses are durable goods. They can be considered as normal goods. So the demand for houses increases as incomes increase. That is to say homeownership probability is likely to increases as household income increases. As mention above, a household is a unit of analysis in the thesis. So "whenever economic units are not individual people, a question always arises as to how they make decision" (Himmelweit et al. 2001). However, Samuelson (1956) considers household's decision making as a special case when a collective of members with different individual preferences make decisions as if they had a same preference. A household utility function, accordingly, is the result of a consistent family consensus. This represents a meeting of minds or a compromise between household members. Author assumes the existence of a household welfare function to be maximized as a whole, with the level of household income given. Simultaneously, it also maximizes the utility of all household members. 10 Looking from a different perspective, Gary Becker, one of the founders of the New Household Economics, argued that a household consensus does not resolve the problem of how different preferences among household members. The author's analysis overcomes this problem of reconciling different preferences by showing how all members preferences of a household could be determined by the preferences of just one member, the household head (Himmelweit et al. 2001). This means the household head's preferences effectively became the preferences of the household as a whole. This theory indicates the importance of the head in the household's decision making. The characteristics of the household head, therefore, are taken into account when examining determinants of homeownership. Furthermore, Himmelweit et al. (2001) analyzes a "gender and power in Becker's model". Authors mention about the head of household who may be a man or a woman. Normally, there are two parents with opposite sex and their children in the household. Becker develops a model based on an implicit conception of gender relations in which author thought that a man is decision maker. The reason is that "men were more likely to specialize in work market and thus contribute more income than home time to the household". This implies that men have a comparative advantage in the labor market and mainly contribute to households. Other significant characteristics of men are "altruistic and redistribute towards other members of their families". That is why they have power in decision making of households. Contrary to men, women have the following characteristics: (1) A comparative advantage in the non- market work; (2) A less contribution to household; (3) A beneficiary of men's altruism; and (4) No power in decision making of the household. These assumptions can be used for many criticisms. If taking account of time as money, it is not clear that contributions of men are the most importance to households. Because many women have full time jobs but they still do a lot of domestic works as well as the feeding and care of children. Thus it is worth to take the affect of gender in examining. In order to analyze decisions made within households, the New Household Economics assumes that "the household behave as if it had a single utility function." This implies that there are more benefits from living together than living alone between household members. Consequently, there are generally gains from co-operative decision 11