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The Economic Theory of Housing Demand: A Critical Review

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    Abstract

    Despite thirty years of modeling housing markets, housing analysts still have difficulty accurately assessing housing demand. This article reviews the current state of the art in economic modeling of housing demand determinants and suggests a future direction for further research. The fully developed economic theory of the housing market for analyzing housing decisions is the neoclassical consumer theory of housing demand. The review of the various modifications that have been made to better operationalize the imperfect and noncompetitive features of the housing market show that these modifications have been introduced in several partial models. These models include tenure choice models, search models, mobility models, and housing trait models. There is currently no single model that incorporates all of the modifications attempted in these partial models. In fact, it may be impossible to operationalize and incorporate all of the modifications of the neoclassical model into a single model. Therefore, the most feasible and conceptually correct research strategy to advance our understanding of housing consumption decisions is to analyze the impact of demographic and social processes on housing consumption decisions. There is a need to research how to include demographic and sociological constructs that capture the attitudes, preferences, and perceptions of the consumer into the classical economic model of housing demand.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol06n03/v06p357.pdf
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    Bibliographic Info

    Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

    Volume (Year): 6 (1991)
    Issue (Month): 3 ()
    Pages: 381-393

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    Handle: RePEc:jre:issued:v:6:n:3:1991:p:381-393

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    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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    1. Eubank, Arthur A, Jr & Sirmans, C F, 1979. "The Price Adjustment Mechanism for Rental Housing in the United States," The Quarterly Journal of Economics, MIT Press, vol. 93(1), pages 163-68, February.
    2. Donald Haurin, 1988. "The Duration of Marketing Time of Residential Housing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(4), pages 396-410.
    3. Stephen Malpezzi & Larry Ozanne & Thomas G. Thibodeau, 1987. "Microeconomic Estimates of Housing Depreciation," Land Economics, University of Wisconsin Press, vol. 63(4), pages 372-385.
    4. Karl L. Guntermann & Stefan Norrbin, 1987. "Explaining the Variability of Apartment Rents," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(4), pages 321-340.
    5. Shilling, James D. & Sirmans, C. F. & Corgel, John B., 1987. "Price adjustment process for rental office space," Journal of Urban Economics, Elsevier, vol. 22(1), pages 90-100, July.
    6. Rosen, Kenneth T & Smith, Lawrence B, 1983. "The Price-Adjustment Process for Rental Housing and the Natural Vacancy Rate," American Economic Review, American Economic Association, vol. 73(4), pages 779-86, September.
    7. James R. Frew & G. Donald Jud, 1988. "The Vacancy Rate and Rent Levels in the Commercial Office Market," Journal of Real Estate Research, American Real Estate Society, vol. 3(1), pages 1-8.
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    Cited by:
    1. Sainan Jin & Wanjun Jiang & Liangjun Su & Jianying Hu, 2006. "The Rise in House Prices in China: Bubbles or Fundamentals?," Economics Bulletin, AccessEcon, vol. 3(7), pages 1-8.
    2. Pami Dua, 2008. "Analysis of Consumers’ Perceptions of Buying Conditions for Houses," The Journal of Real Estate Finance and Economics, Springer, vol. 37(4), pages 335-350, November.
    3. Dominik Weiß & Claus Michelsen, 2011. "The improvement of housing conditions in post com-munist Germany – Market Mechanisms and Subsidy Impacts," ERSA conference papers ersa11p505, European Regional Science Association.
    4. repec:ebl:ecbull:v:3:y:2006:i:7:p:1-8 is not listed on IDEAS
    5. Karen M. Gibler & Paloma Taltavull & Jos?Manuel Casado-Dˆqaz & Mari Angeles Casado-Dˆqaz & Vicente Rodriguez, 2009. "Examining Retirement Housing Preferences Among International Retiree Migrants," International Real Estate Review, Asian Real Estate Society, vol. 12(1), pages 2-22.
    6. Pami Dua & Stephen M. Miller & David J. Smyth, 1996. "Using Leading Indicators to Forecast US Home Sales in a Bayesian VAR Framework," Working papers 1996-08, University of Connecticut, Department of Economics.
    7. Jonathan Wiley & Leonard Zumpano & Justin Benefield, 2011. "The Limited-Service Brokerage Decision: Theory and Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 43(3), pages 336-358, October.

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