2 - The Demand for Housing

Abstract

This chapter focuses on the demand side of the housing market. The demand for housing embodies three distinct choices by consumers. One is the decision to form a household and about the number of members that household should have. The demand for housing services arises not from individuals but from groups of individuals sharing a dwelling unit. The demand for housing services is not strictly proportional to the number of people, but depends on the way they group themselves into households. The second decision is to whether own or rent housing. The third decision is how much housing to be consumed. These are, in principle simultaneous decisions, although the structure of preferences may imply that they are separable. To a certain extent, the demographic make-up of households is endogenous to the housing market. If the price of rental accommodation is relatively low, young people will be more likely to leave their parents' homes, and elderly people will be more likely to stay in their own apartments. If the price of detached houses rises, people may postpone marriage or postpone having children.