Estimating the Consumption and Investment Demands for Housing and Their Effect on Housing Tenure Status

Abstract

Theoretical work suggests that families live in owner-occupied housing if their invest- ment demand for housing exceeds their consumption demand for housing. Using household data from the 1983 Survey of Consumer Finances, an analysis tests this theory by estimating an ordered probit model of whether families rent without owning property, rent while owning property other than their home, own their home without owning other properties, or own their home in addition to other properties. For owner-occupiers who own additional property, both the investment and consumption demands are directly observed, permitting the separate identification of these functions. The results suggest that investment demand is more sensitive to wealth and income than is consumption demand, but that consumption demand is more sensitive to demographic variables and proximity to urban suburbs. In addition, test results indicate that the principal residence of most owner-occupiers is determined by their consumption demand for housing, not their investment demand. Review of Economics & Staristics, February 1994, 76(l): 127-141. (Reprinted with permission of ABV/Inform, Copyright UMI.)