Demand for Housing: A Cross-Section Analysis

Abstract

OST research in housing demand has M focused on the explanation of aggregate behavior. Studies have tended to concentrate on statistical analysis, emphasizing construction of econometric models of aggregate housing demand. Research by Klein, Mattila, and Muth, among others, has provided considerable insight into the determinants of aggregate housing demand.1 However, it is being increasingly recognized that many relevant differences among individual households -for example, age of head, marital status, occupation of head, community type -ought to be considered in conjunction with the conventional economic variables, in studying the demand for housing. Moreover, a model built upon individual decision units has been developed in recent years to simulate the socio-economic system of the United States.2 This type of model also requires extensive knowledge of the behavior of individual decision-making units on housing expenditures. An analysis of crosssection data can provide this type of information about the individual demand for housing, but only fragmentary work has been done along these lines to date. In this paper, a cross-section analysis using economic and demographic characteristics is carried out to investigate the determinants of several aspects of the demand for housing. It attempts to answer the following questions: What are the factors affecting the decision to buy a house and the amount spent on purchase of a house? Given the purchase of a house, what are the factors influencing the decision to incur mortgage debt and the amount of mortgage debt incurred? In presenting the results, comparisons are made with empirical findings of earlier studies. This study differs mainly from other research in this area in that it treats house purchase and new mortgage incurment as jointly determined, and that investigation is undertaken of the marginal and conditional distributions of these aspects of behavior.