Abstract
Modern economic analysis of housing markets applies a neoclassical framework to explain phenomena. Neoclassical housing models are underpinned by microeconomic foundations. Central to the analysis is the concept of the housing user cost of capital, which links the consumption and investment aspects of housing. Neoclassical housing models have been used to explain house price determination, housing tenure choice, and levels of housing consumption. In addition to taxation and subsidy benefits to homeownership, the neoclassical model may be extended to capture various causes of frictions in the housing market, for example, credit rationing, search costs, and annualised transactions costs, which deter frequent trading.
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