Housing demand in Indian metros: a hedonic approach

Purpose - This paper aims to understand housing demand of urban Indian households in terms of housing and household-level characteristics. Because a house is a bundle of certain characteristics which vary across houses, each characteristic has an implicit price. Finding this implicit price for certain important characteristics is the first objective of this study. The second objective of the paper is to compute the income elasticity and price elasticity of housing demand for these cities. Design/methodology/approach - To achieve comparable estimates, household-level data from India’s National Sample Survey Organisation housing surveys for the years 2002 and 2008-2009 have been used. A hedonic price function is estimated using ordinary least squares (OLS) and Box-Cox functional forms to estimate the implicit prices of housing characteristics. This exercise is attempted for owned and rented houses separately. Demand function required for computing the elasticities, uses the hedonic price index derived from the implicit prices and household characteristics. Findings - The study finds housing demand to be income elastic and price inelastic for the six cities across both the time periods. Originality/value - Firstly, this study includes housing characteristics such as individual access to drinking water, modern sanitation facility, separate kitchen, condition of the structure, existence of a road with street light and whether the house is in a slum or non-slum area in the hedonic price function. These variables were not used in any of the earlier studies pertaining to India. Secondly, it uses the Box-Cox non-linear form to derive the hedonic price function, a specification not used earlier. Thirdly, this is the first study analysing housing demand across the six largest Indian cities.