Chapter 2 - The Demand for Rental Housing

Abstract

This chapter presents a simple microeconomic model that conceptualizes household behavior and also presents a summary of some of the extant evidence on housing demand. The chapter estimates housing demand models for the low-income population in the Demand Experiment, using housing expenditures to measure housing. The chapter presents a few concepts of the microeconomics of housing demand and explains the way in which the proportional rent rebates affect household behavior. It also presents some recent empirical evidence on price and income elasticities of demand for rental housing. The chapter presents comparable results obtained from two different demand functions: (1) log-linear and (2) linear expenditures functions. The results demonstrate that both price and income elasticities of demand are not constant over a range of prices and incomes or across demographic types. The evidence indicates that low-income households change their housing consumption very little in response to income and housing price changes. The equilibrium demand for housing can best be estimated when only recent movers are included in the sample.