A Simple Model of Housing Rental and Ownership with Policy Simulations

This paper develops a simple model that captures the essential features of the supply and demand for housing, and which is used to evaluate the impact of a range of policy interventions. The model incorporates functions describing the demand to rent or purchase housing, a function describing the supply of rental housing, and a function describing the supply of new houses.

The model is used to explore:

• the effects on:
• prices,
• quantities, and
• owner occupancy (home-ownership).
• rates of policies that:
• change the stock of housing,
• alter the taxes and subsidies facing landlords and homeowners,
• alter the cost of new housing, and
• alter real interest rates.

The results suggest that despite the widespread attention owner occupancy rates have attracted, they are not a particularly helpful guide to the state of the housing market. Typically they are quite insensitive to policy interventions, a result that follows from the integrated view of both the rental and ownership market, adopted in this study.