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.