Housing demand and supply

In this chapter, we show, first, that the price of an owner-occupied dwelling cannot be the simple discounted value of any imputed rents the dwelling is supposed to generate, especially if the discount factor is limited to some version of the cost of capital. Second, we show that, as a result, it is perhaps better to focus on housing prices as distinct from rents (rather than on rents as the building blocks of prices) when constructing demand or supplymodels for owneroccupiedhousing.Onedemandmodel and a combineddemandand supplymodel are provided byway of examples, alongwith a practical estimation of future housing ‘demand’ on a ‘needs’ basis. Turning to the construction sector, a housing developer’s profit-maximization problem is investigated, focusing on use of the developer’s required rate of return in order to calculate how much the developer would pay for a site. Finally, the ‘Greek’ and ‘Anglo-American’ modes of residential development are discussed and contrasted.