Search theory and subsidized housing demand in New Zealand

Abstract

A search-theoretic model of housing demand is presented and evidence is found in its support based upon the 1995 records of 260 000 New Zealand (NZ) tenants eligible to have received an unrestricted housing subsidy. In the model, a unit increase in search costs is predicted to increase the optimal rent according to a factor proportion less than one while a unit increase in moving cost is predicted to decrease the rent. The factor-proportion increase in the rent, also a marginal propensity to rent, is around 21 NZ cents for every NZ dollar increase in search costs. The moving-cost decrease is supported by the rent effects of some indicative characteristics. The empirical findings are found to be stable across a range of applicable estimators including those that may have been needed to correct for censoring and reverse-causality.