EQUILIBRIUM HOUSING VACANCY RATE FROM PERCEIVED SHORTAGE

Abstract

Housing markets need vacant dwellings at any time for proper functioning, but how many? At what low vacancy rate do households feel they have too little choice of residence? With rent regulation, movements in rents are poor indicators of market tensions. This paper infers market tensions from a household survey. It is tricky to simply ask households how tight they perceive the market to be because their answers might be tainted by their personal housing condition. This paper tests whether indicators of personal housing situation such as size of dwelling and rental burden contribute to explain perceived housing shortage. A multinomial logistic model allows identifying the determinants of perceived housing shortage. It also allows computing the vacancy rates at which a certain proportion of respondents would see just moderate housing shortage or no shortage at all. To our knowledge this is the first time equilibrium vacancy rates have been derived so carefully from household survey. The results are compared to those of the standard approach. The paper adds texture to the concept of equilibrium vacancy rate, which is generally seen quite eronously as a cut-off point: below that level there is housing shortage, above that level everything is OK. The paper examines the Swiss housing data, which is interesting with its record high proportion of rental housing, its second generation rent control and its long-time low vacancy rates. It first compares those vacancy rates over time with the rate of change in rents of dwellings put on the market. This suggests an equilibrium vacancy rate between 0.8 and 1.4%. Next it analyses the responses obtained in a household survey held in 2005. Respondents were asked to report their perception of housing shortage in their area. A multinomial logistic model is used to related those discrete responses to the local vacancy rate but also to a variety of descriptors personal housing conditions. This allows to test to what extent perceived housing shortage is tainted by personal housing conditions. The results show that only one indicator of personal housing condition affects perceived housing shortage - the difference between needed and actual dwelling size. They also show that for a vacancy rate of 1.45% 25% of Swiss residents would perceive severe housing shortage. The methods developed in this papers allows defining vacancy rates for which different proportions of households perceive severe housing shortage.