Abstract
Despite the voluminous literature devoted to it, the concept of housing demand is ambiguous. Reconciling this ambiguity is important since the approach to estimating housing demand and the policy questions that can be addressed depends crucially on what interpretation is used. In this paper, housing demand is modeled as a continuous quantity that represents the flow of housing services. Confusion can arise over whether these services include not only those that arise from the housing structure but also from the neighborhood in which the house is located. The demand for housing services is derived from standard utility maximization and it is decomposed into structure and neighborhood demand equations. Another key issue that is addressed in this paper is the construction of the price of housing. Allowing for a single price of housing or multiple prices in a given housing market results in different indices for housing services that can produce very different estimates of the price and income elasticities for housing. This latter point is borne out in an empirical example using data from National version of the American Housing Survey for 1993 and 2001.
Published Version
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