11-07-2014, 08:31 AM
The Economic Theory of Housing Tenure Choice
While many of the alleged particularities of housing markets are, in fact, shared to a considerable extend by other markets, housing appears to be the only commodity for which renting and ownership coexist roughly on equal scale. Since many of the advantages of ownership are the shortcomings of renting and the best reasons for renting are the drawbacks of owning, a thorough understanding of tenure choice will give us a lot of mileage in the analysis of the housing market.
Sometimes the choice of tenure is analyzed narrowly, with an undue focus on the demand side. However, there would be no choice for consumers if all owners would prefer to sell rather than to rent out (or the other way round). Hence, we consider tenure choice as a joint decision on both sides of the market, consumers and suppliers, over the contractual forms of housing exchange. Finally, ownership and renting are fairly complex institutional arrangements the exact meaning of which differs from country to country due to different regulations and business practices. In this essay, the focus is on principles rather than on the diversity of institutional details.
While many of the alleged particularities of housing markets are, in fact, shared to a considerable extend by other markets, housing appears to be the only commodity for which renting and ownership coexist roughly on equal scale. Since many of the advantages of ownership are the shortcomings of renting and the best reasons for renting are the drawbacks of owning, a thorough understanding of tenure choice will give us a lot of mileage in the analysis of the housing market.
Sometimes the choice of tenure is analyzed narrowly, with an undue focus on the demand side. However, there would be no choice for consumers if all owners would prefer to sell rather than to rent out (or the other way round). Hence, we consider tenure choice as a joint decision on both sides of the market, consumers and suppliers, over the contractual forms of housing exchange. Finally, ownership and renting are fairly complex institutional arrangements the exact meaning of which differs from country to country due to different regulations and business practices. In this essay, the focus is on principles rather than on the diversity of institutional details.