Academic journal article Real Estate Economics

Finnish Homes - through Passages or Traps?

Academic journal article Real Estate Economics

Finnish Homes - through Passages or Traps?

Article excerpt

This is a study of tenure choice, housing demand and mobility in the submarkets of the Helsinki metropolitan area. The empirical analysis is based on data on households, type of tenure, housing characteristics and mobility for a sample of Helsinki residents at the end of 1980s. According to our results the probability of owning is affected not only by user costs of alternative tenure forms but also by permanent income and demographic variables. Results from the tenure specific housing demand models indicate that there are non-neutralities in the housing markets. Permanent income elasticities of housing demand are clearly positive in owner-occupied sector and systematically higher than in the rented sector. The demand for owner-occupied housing depends very strongly on the age of the household head. User cost per housing unit affects housing demand negatively in both tenure forms. Effective demand is greater in private housing sector. The results suggest that owner-occupied living is preferred with heavily subsidized households the least likely to move. In the rental sector, where the probability of moving is higher, it is also true that the most heavily subsidized households are the least likely to move.

This paper reports results on tenure choice, housing demand and mobility in the Helsinki metropolitan area (subsequently Helsinki). The Helsinki housing market consists of various segments. From the consumers' viewpoint the different segments of the Helsinki housing market are not perfect substitutes. On the contrary, there are non-neutralities due to tax treatment of housing, rent and price controls and various forms of non-price allocation mechanisms which may affect the choice between owning and renting and tenure specific housing demands.

There are several previous studies on housing demand and tenure choice. Here, we only pay attention to empirical studies which utilize micro data. The earlier literature analyzed housing demand separately with differing specifications for renters and owners (e.g., de Leeuw 1971; Straszheim 1973; and Polinsky 1977). Tenure choice was studied separately with a discrete choice econometric model in Li (1977) and later by Haurin and Kamara (1992).

However, discrete tenure choice and continuous housing demand are interdependent. This was taken into account in Lee and Trost (1978), Rosen (1979) and Gillingham and Hagemann (1983) by specifying discrete tenure choice and continuous housing demand models where the error terms are correlated to recognize that the same elements of behavior are present in both models. The same two-stage estimation procedure was used in Loikkanen (1992) which studied tenure choice and demand for dwelling size with nationwide data from Finland.

A further step was taken by King (1980) and later by Hendersson and Ioannides (1986). They recognized that tenure choice and housing demand are a joint decision based on maximization of the same utility function. This leads to joint estimation with cross-equation constraints on parameters and the functional form of equations determining tenure choice and the demand for housing services. Brownstone, Englund and Persson (1988, 1989) in their latter study identify Swedish owner-occupied apartments (co-op shares) as a third mode of tenure and also use information on the households, own assessment of their probability of moving during the next year.

Some of the latest studies have included still additional elements to the setting. In Hendersson and Ioannides (1989) panel data is used to estimate a model of joint tenure, length of stay and housing consumption level choices of families. Panel data is also used in Haurin and Lee (1989) where a structural model of the demand for owner-occupied housing is estimated. The buyer selects the value of the house, the size of the mortgage and the length of stay in the house.

Hierarchial models such as employed in Clark and Onaka (1985) view the decision to move and the choice of a new housing unit as a joint decision and propose a hierarchial decision process that can be estimated using the nested logit specification. …

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