Abstract
A household's consumption of housing depends on current and expected future values of influential variables. However, the cost variable used in most studies of housing demand is static. In contrast, we formulate a cost measure that incorporates both expected future changes in its components and the transaction costs associated with home ownership. Measuring annualized transaction costs requires us to estimate a household's expected length of stay at the time of purchase. We use a parametric hazard rate model for this estimation. By projecting future values of the other components of user cost, we complete the measurement of a multiperiod version. Results from estimating housing demands show that our multiperiod transaction-adjusted user cost performs better than the static form and that inclusion of transaction costs is the most important adjustment.
Published Version
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