The determinants of housing demand An analysis for French households 59th North American Meetings of the RSAI 9 November 2012 The determinants of housing demand An analysis for French households   Nicolas Coulombel, Clémence Morel Université Paris – Est, LVMT  : nicolas.coulombel@enpc.fr

presentation outline Introduction Methodology Comparison of the LES and the QES: a simple model Impact of household size on housing demand Conclusion

context & motivation Housing: increasing weight in French households’ budget yet limited research on housing demand in France Aim of this research determinants of housing demand influence of household size Motivation recover households’ preferences for LUTI modeling design of housing policies

methodology Comparison of two demand systems Step 1: simple models Linear Expenditure System Quadratic Expenditure System Step 1: simple models estimation with expenditure and budget share Step 2: introduction of HH size use of « scaling »

the linear expenditure system (les) Expenditure for good i Derives from the Stone-Geary utility function For two goods : housing h and composite z income elasticity of housing : price elasticity of housing :

the quadratic expenditure system (qes) Expenditure for good i Derives from the indirect utility function For two goods : income elasticity price elasticity

properties of the les and the qes Estimation LES & QES: only 2 periods/regions required QES: non linearity  log-likelihood maximization Interpretation of coefficients in the LES ai: marginal budget share bi : subsistence quantity? Elasticities LES: ηy  with Y, ηy  1 and ηP  with Y, ηP  -1 QES: more flexible

data 2006 French Housing Survey Sample Housing price Income private renters excluded: students, outliers (income & net budget share) 5 907 observations Housing price observed mean regional rental price Income current income

housing expenditure Gross monthly rent Preliminary analysis rental charges/utilities excluded subsidies not taken into account ( control variable) Preliminary analysis marked heterogeneity trend: increase with HH income heteroscedasticity

housing (gross) budget share Definition: Gross Housing Expenditure / HH Income > net budget share case of low-income HHs Preliminary analysis budget share decreases with income volatility strongly decreases with income same remarks for net budget share

estimated models Housing outlays LES QES Budget shares: same model divided by Y Heteroscedasticity housing budgets : weight Y-1 budget shares : weight Y0.66

estimation results LES QES Exp Budget Share ah 0.099*** 0.101***   LES QES Exp Budget Share ah 0.099*** 0.101*** 0.124*** aS 0.187*** 0.213*** 0.206*** 0.228*** bz -2043.1*** -1971.5*** -2028*** -1933.3*** bh 12.43*** 11.88*** 6.11*** 6.71*** ch 2.31*** 2.12*** λ -0.157* -0.11652 d 0.0109*** 0.0108*** R² 0.326 0.624 0.337 0.626 B-P (p-value) 0.01 0.24 0.08 0.17

engel curves (budget share)

income elasticity

price elasticity

impact of household size Same models as before (LES & QES) estimated on budget shares Use of scaling (Pollak and Wales, 1981) parameters vary with HH composition Representation of household size 4 dummies: partner/spouse, 1 child, 2 children, 3 children and more  test non-linear effects

estimation results   LES QES ah 0.101*** 0.158*** ah,spouse -0.011** -0.031*** ah,child1 -0.0074** -0.026*** ah,child2 -0.0041** -0.019*** ah,child3+ -0.0023** -0.022*** as 0.110*** bz -1881*** -1830.1*** bz,spouse -766.6*** -908.7*** bz,child1 -797.9*** -298.4*** bz,child2 -918.7*** -702.2*** bz,child3+ -659.6*** -553.9*** bh 12.25*** 1.67 bh,spouse -4.55*** -4.60** bh,child1 0.43*** 7.13** bh,child2 -0.90*** 2.46** bh,child3+ 3.31*** 6.89** ch 1.106*** ch,spouse 0.692*** ch,child1 0.782*** ch,child2 0.561** ch,child3+ 0.714** λ -0.10033*** d 0.0107*** 0.0105*** Log-likelihood 6324 6373 R² 0,634 0,64 B-P (P-value) 0,19 0,23 QES : significant compared to LES (likelihood ratio test) LES children  housing expense increases by a constant spouse: more complex effect QES impact harder to interpret QES > LES: likelihood ratio-test

les – engel curves

qes – engel curves

les – income elasticity

qes – income elasticity

housing budget share and household size in expensive areas Ile de France (Paris area) average rental price = 14,4€/m² ≈ twice the national average Specific feature: couples have a lower housing budget share than single persons plausible interpretation: dual-earner couples might keep the previous home of one of the households’ members

conclusion Comparative analysis of the LES and the QES similar explaining powers LES easier to interpret but elasticities provided by LES are likely biased Household composition and size matters partner/spouse and children do not have the same impact on housing demand Future research investigating the strong heterogeneity of housing budget shares for low-income HHs analysis of the linear and quadratic AIDS