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Real Estate
Demand for housing
One of
the main determinants with regard to the demand for housing is the
demographic factor. However other factors like income, price of housing,
consumer preferences, investor preferences, cost and availability of
credit, price of substitutes and price of compliments all play important
roles.
The core demographic variables are
population size and population growth: the more people present in the
economy, the greater is the demand for housing. But this would be an
oversimplification, since it is necessary to consider family size, the age
composition of the family, the number of first and second children, the
number of double family households, net migration, non-family household
formation, death rates, divorce rates, and marriages etc. When it comes to
housing economics, the elemental unit of analysis is not the individual
since it is in standard partial equilibrium models. It rather is
households that demand housing services: typically one household per
house.
The size and
demographic composition of households is variable though, and are not
entirely exogenous. It is endogenous to the housing market in the sense
that if the price of housing services increases, that of the household
size will also tend to increase. Income and the price of housing is also
an important determinant when it comes to the demand for housing. Many
housing economists tend to use permanent income rather than annual income
because of the high cost of purchasing real estate.
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