IMPACT OF ETHNIC INTEGRATION POLICY ON RESIDENTIAL PROPERTY VALUES

Abstract

This study seeks to investigate the unintended impact of Ethnic Integration Policy (EIP) on resale residential property prices. Based on various studies on housing policies, reference can be drawn between housing eligibility policies and EIP, according to how they can restrict the volume of demand and supply in the housing market. Because of their restrictive nature, they have the tendency to affect housing prices. Distortion of prices by EIP can potentially lead to unequal social welfare distribution among affected buyers and sellers. This is especially so when affected groups have to pay a premium to stay in EIP restricted neighborhoods.

Using a log-linear hedonic price controlled model, transaction data from 7,920 resale public residential property was selected for the study. The results show an overall price premium of 3.56% for flats that are restricted by ethnic quota. Further investigations show that EIP has different effect on restricted flats, according to the ethnic groups they are restricted by. For instance, flats restricted by Chinese and Indian reflect a price premium of 8.00% and 4.50% respectively, while those restricted by Malay reflect a price discount of 4.40%. This differing effect on prices can be explained by the behavior of affected buyers and sellers, coupled with their household incomes.

The differing effect of EIP on different groups suggests the presence of unequal social welfare distribution. Hence, there is a need for policymakers to understand this unintended impact of EIP and behavior of affected groups to address the problem.