A Simple Model of Housing Rental and Ownership with Policy Simulations

This paper develops a simple model that captures the essential features of the supply and demand for housing, and which is used to evaluate the impact of a range of policy interventions. The model incorporates functions describing the demand to rent or purchase housing, a function describing the supply of rental housing, and a function describing the supply of new houses. The model is used to explore the effects on prices, quantities, and owner occupancy (homeownership) rates of policies that change the stock of housing, that alter the taxes and subsidies facing landlords and homeowners, that alter the cost of new housing, and that alter real interest rates. The results suggest that despite the widespread attention owner occupancy rates have attracted, they are not a particularly helpful guide to the state of the housing market. Typically they are quite insensitive to policy interventions, a result that follows from the integrated view of both the rental and ownership market, adopted in this study.