Dynamic Model of Private Incentives to Housing Maintenance

Abstract

The current housing stock in U.S. cities consists primarily of privately-owned dwellings in structures that are more than a few years old. Consequently, changes in housing quality in many neighborhoods are determined primarily by the current decisions of private owners to repair, modernize, or expand existing houses rather than by new construction or by direct governmental action. Furthermore, despite the seriousness of widespread housing decay in older urban neighborhoods, many private dwellings are improved over time when market incentives to do so are sufficiently strong. Many writers on the subject of housing quality have recognized this fact [4; 5; 10; 11; 13], but they have focused most attention on slum creation as a separate phenomenon' and little attention has been given explicitly to the maintenance decision of the individual owner.2 Most of the discussion of housing quality is in terms of the characteristics of the owners or occupants or the physical characteristics of the community or neighborhood. This demographic approach, as most thoroughly applied by Muth,3 has validity for explaining present housing quality in an area, but it does not fully explain the process of quality change or the locational dynamics of improvement and decay. The process of quality change as determined by homeowner maintenance decisions i discussed by Lowry [8]. In his filtering model, certain market conditions are responsible for an owner's decision, in his own i terest, to allow a dwelling to deteriorate. If these conditions prevail throughout a neighb rhood, this process eventually results in the transferral of occupancy to persons of lesser means or more modest tastes for