Income Elasticities of Demand for Rental Housing in Small Cities

Abstract

The housing consumption of renters in small cities is examined using a constant elasticity model estimated from cross-sectional data for a sample of 500 households. Permanent income is estimated using a cohort averaging technique which adjusts for differential expectations of future incomes. The demand for housing is found to be highly inelastic with respect to income, particularly for large, poor, or black households. The results suggest that for a housing allowance to be an effective means of increasing housing consumption in small cities, it may have to include more restrictive earmarking requirements than in metropolitan markets.