A Hierarchical Model of Housing Choice

Abstract

The main objective of this paper is the construction of an expanded model of housing choice that includes not only tenure choice, which has traditionally been the subject of analysis, but also other housing characteristic choices. In this model the probability of the household making a given tenure choice is estimated at the first level of a choice hierarchy. The family's choices over dwelling size and quality are then estimated at succeeding levels of that hierarchy, conditionally on the choices which precede them. These conditional probabilities can be combined with the probability of tenure choice to produce eight joint probabilities of housing choice. In addition, for a particular household or group of households, we can determine the effect of a change in any of the systems variables on the probability of the families making a given housing choice. In the empirical section it is demonstrated that this model provides much greater insight than the conventional tenure choice study regarding the effects of income, relative prices, and other socioeconomic variables on the family's housing choices. Consequently, it is concluded that models of this type should provide a superior tool for designing effective housing policy.