Income Elasticity of Housing Demand

by John E. Mulford

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Estimates the long-run "permanent" income elasticity of housing expenditures to be 0.45 for owners and 0.19 for renters using cross-sectional data from the two Housing Assistance Supply Experiment (HASE) sites — Brown County, Wisconsin, and St. Joseph County, Indiana. Results from a constant elasticity model are compared with those from models which allow the elasticity to vary with income — linear, spline, and log-exponential models. The evidence is consistent with either constant or slightly increasing elasticity with income. Estimated elasticities do not vary systematically by household type. The report concludes that the income elasticity of housing expenditures in the HASE sites is low, both absolutely and relative to conventional wisdom and recently published estimates. If the findings are generally correct, pure income transfers will not much affect recipients' housing expenditures.

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