Housing economics

• Housing: Heterogeneous commodity. Provides different

services to different people
p p
• Bundle of diverse attributes and services
• Space, physical quality, amenities, neighborhood quality,
location, access to workplace

• Trade off between housing consumption or cost of

transportation
• Consumption good- investment good
• It is a multi-faceted good
• Market evaluation depends on location, dwelling
characteristics, amenities, legal status, use type, no. of rooms
 Housing economics

• Housing adjustment process

• Preferences and aspirations of affordability for housing is in
response to
t their
th i perception
ti off affordability
ff d bilit ffor housing.
h i
Adjustment is a dynamic process
– Terms of financial assistance
– HH income + savings
– Perception
p regarding
g g future saving
g
• Demand & supply & determination of market equilibrium
• Price,, income,, supply
pp y
• Resources- factors of production
i)) Natural resources- pphysical
y and mental ((inherited and
acquired)
ii) Man-made aids to production- tools, machinery, factories
used for making goods and services- capital
 Housing economics
• Govts raise revenues through taxation of incomes
incomes, profits and
expenditure, and can provide goods and services (through
local authorityy housing)
g)
• Merit goods: housing, education, health- Govt tax incentives
to encourage purchase for owner-occupation
• Demand and supply:
• Price, income, supplyy
• Resources- factors of production
• Natural- Human,, manmade aids of production
p
• Merit goods: housing, education, health
• Price- demand and supplypp y
• Demand rises (consumers)- price falls
 Housing economics
• 3 variables which influence demand
– Purchasing power of HH- income
– Income increases
– Price of certain goods / substitutes
– Change in taste
 Housing Need and demand

• The quantity of housing that is required to provide

accommodation of an agreed minimum standard and above
for a population given its size
size, household composition
composition, age
distribution without taking into account the individual
households abilityy to pay
p y the housingg assigned
g to it.
• Housing need:
– minimum form of p provision but ignoring
g g ability
y to p
pay
y
– Distortions to housing system- target groups
• Housing Demand: over and above need
• King (1998) states- “Choice not available to all”
• For a significant minority choice is deemed not to exist at all
and thus housing is provided for them through either direct
provision or subsidiaries. The reason for this –households
have insignificant means to provide for themselves
 Housing need

• Housing need: quantitative and qualitative

• Increased demand: external phenomenon
» Quantitative in nature
• Added space requirements- provision of better amenities are
i
internal
l + qualitative
li i
• Six major determinants to assess future housing needs:
– Available
A il bl h
housing
i stock
t k
– HHLS and their formation
– Completions- no.
Completions no of new houses added
– Vacancy rates
– Income of HHLS
 Housing Needs
• Existing
E i ti need:
d SSurvey on
– Total number of existing unit
– No or population of existing stock that is unsuitable
– From census data or by instituting a survey
• Replacement
p need:
– Form of construction of existing houses
– Life span of existing houses
– rate over preceding years
– The oldest need replacing this year
– Average life span is 25 years – 4% of existing stock
30 years – 3% “”
50 y
years – 2% “”
• Future Housing needs
– To estimate number of additional households at a given date in future
– Population by expected household size
 Quantifying the need

• HNt = (Dt+ dt) – (S + Ct)

• Housing need(time) = (housing demand + Demolition) – housing
stock
t k + completions
l ti
• Housing stock Dt = ht x (1+vt)
• no off households
h h ld x (1
(1+ vacancy rates))

• Demolitions dt = At + Bt + Ct
• = demolition due to deterioration+ demolition
d tto depilated
due d il t d state+
t t d demolition
liti d
due tto slum
l clearnace
l
 Estimating housing need

• How many dwelling are added at present time overcome

existing shortage? For this size of existing suitable housing
stock needs to be to be taken
taken.

• Over the next twenty years how many of the existing

dwellings will have to be replaced because they are
deteriorating (expressed as rate of obsolescence)

• How many new housing units will have to be built over the
next twenty years to catch for expected growth of the city

• What type of housing will be demanded by various groups of

users in terms of its cost, size and service standards
 Housing demand
• Information required:
– Income
– Expenditure
p
– Savings
– Household size
– Household structure
• Effective demand: what people are able to obtain-affordability
• Potential demand: what housing people would prefer if people
had a choice house
• Type
T off demand:
d d Popular
P l h housing,
i iindividual
di id l ffamily
il hhouse,
apartment
• Extent of demand: No.
No of households in target populations
projected for the project’s time period
• Nature of demand: upgrading or new housinghousing, tenure
(ownership, rental, plot size, location, utilities)
 Housing as a process Vs product

Process: Planning- location, tenure, choice, comfort,

Construction- land, building and services
Management of housing

Product: Private sector – individual, organised builderd, NGOs,

cooperatives
Public sector: Housing boards
Development authority
City improvement trust
Municipalities and corporations
Informal sector: operate completely outside legally accepted
markets
Own rules, norms and standards
 Housing process
• Residential area characteristics:
– density/population/ accessibility/public services/ building conditions/
amenities (areas of housing stress- qualitative differences in residential
areas for housing)
• Rates of change:
– P
Population,
l ti migration,
i ti h
household
h ld size,
i h
housing
i production,
d ti
obsolescence
• Household data:
– Population, household size, housing stock
• Financial criteria:
– Construction cost, land cost, boom conditions, household income
• Future housing
g need:
– Change in trend in housing needs
– Household’s ability to pay
– Housing deficit by income group
 Housing adjustments

• Housing preferences, Linn has identified 5 key attributes of

housing demand
• Access,
A space, security it off tenure,
t on-site
it services,
i & shelter
h lt
• Access to employment opportunity, community, health and
education facilities
facilities, it is an important element of housing
demand
• Household location decisions by migrants and low-income
families reflect the basic trade off between transport costs and
rents
• Space, lot size- trade off between commercial or agricultural
activities
• Security of tenure:
– Capital gains- increase in property values
– Property as collateral
– Income from renting and using it for commercial purposes
 Housing adjustments

• Aspiration region of housing attributes

• Socio-demographic, economic characteristics
• Housing opportunities and prices
• Utility derived depends on aspiration region
• Required additional space new aspiration region
• Increased supply in particular type of housing- change in
perception of opportunity
• Increased potential of financial asset- create dynamic change
• HHLS with limited perceptions of affordability and opportunity-
do not try to change the housing situation
• Constrained
C t i dh housing
i marketk t – eakk information
i f ti flow-
fl HHLS
adjust needs
 Housing adjustments

• PM- potentially mobile

• Early achievers: Satisfactory housing at early age
• Middle age after initial struggle
• Constrained adjusters: unable to attain good trade-off on
diff
different preferences
f
• Downward mobile: housing situation worsens over time forced
outt off the
th house
h due
d tot economic i contextual
t t l factors
f t
• Constrained immobile: overcomes size dis-satisfaction due to
advantage of low rent