The Engel curve of owner-occupied housing consumption
Journal article, Peer reviewed
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OriginalversjonJournal of Applied Economics, 17(2014)2: 325-352 10.1016/S1514-0326(14)60015-5
Housing is a major component of aggregate demand, and understanding how the demand for housing co-varies with income is useful for analysis and policy. While estimating housing consumption for tenants amounts to observing rents, estimating housing consumption for owner-occupiers is challenging because it is not directly observable and interest payments vary with re-paid principals. In order to examine the housing consumption for owner-occupiers, this article combines micro data sets on income and imputed rents for owner-occupiers based on home attributes from a consumer expenditure survey and monthly rents in a rental survey. This allows estimation of an Engel curve of owner-occupied consumption, both parametrically and non-parametrically. Regression results demonstrate that the income share of owner-occupied housing consumption decreases with income, while the Engel elasticity computed at the mean is 0.32 and increasing in income.
This is the author's accepted and refereed manuscript to the article