2. An Econometric Model of Housing Price, Permanent Income, Tenure Choice and Housing Demand By Allen C. Goodman in Journal of Urban Economics, 23, 327-353 (1988) Presented by Till K. Kuhr December 2, 2002 Journal Article Presentation:

3. Overview Reason for different Demand of Owners and Renters Influences on Decision to Rent or Buy and Housing Demand Some empirical results Conclusions

4. Motives for Housing Demand Investment Motive Housing Services Housing as Asset Looking on Housing Services Consumption Motive 1.Tenure Choice: rent or own 2.Quantity Decision

5. Tenure Choice Tenure Choice: decision to rent or own; may involve expectation over future and possible investment characteristics of the housing bundle Tenure Choice Function =f(relative prices, value-rent ratio, income, age)

6. To Decide Tenure Choice Relative Price (per unit) =Owner Price/Renter Price Compare prices for generalized house on market: Value-Rent Ratio= Asset value Rental Value =capitalized rents + expected capital gain rent For specific house:  sum of hedonic prices interpreted as reconstruction costs Different Hedonic prices for Owners and for Renters Tenure choice = f(relative prices, value-rent ratio, income, age) 1 23 Result

7. Tenure Choice and Housing Demand Permanent Income Current Income Tenure Choice Owner/Renter Price (per unit) Value-Rent ratio Investment Demand Quantity of Housing

8. Elasticities of Demand 0.775 0.311 -0.766 0.301 0.084 0.173 Permanent I. 0.195 n Qr,Y 0.413 n Q,Y Price 0.778 n value-rent Value-rent-ratio 0.292 n Pr -0.792 n Po 0.285 n Qo,Y Current I.Income Tenure Choice Elasticity with Respect to Relative price : -1.436

9. Conclusions Consumption and investment demands for housing Tenure choice influences quantity of housing services demanded Impacts of income and/or price affect tenure choice and quantity decision simultaneously Possible future Estimation: Actual separation of housing demand into consumption and investment portion