Affordability and the demand for separate accommodation

The number of private households in Canada surged in the 1970s; at the same time, rental housing was becoming more affordable. Then, in the first half of the 1980s, affordability declined and household formation slowed. Were these changes in household formation attributable to changing affordability? In this paper, a model is estimated by means of logistic regression, in which the living arrangement of a family (or a nonfamily adult) is a choice made on the basis of the income and other characteristics of the family (or adult), and the price of maintaining one's own dwelling. In the model current income is partitioned into expected and transitory components, indicators of income expectations are included, and the endogeneity of living arrangement and income is considered. Income variables are measured in terms of the units of standard rental housing that the family or individual can purchase. The model is estimated empirically by using pooled data drawn from the 1981 Census and 1986 Census public-use samples. The estimation is comprehensive in coverage; separate model estimates are presented for up to 44 distinct pools of consumers defined by age, sex, family status, and income. Estimates derived from the model show that affordability had an effect on living arrangement that, although often statistically significant, was numerically small and that declining affordability does not predict well changes in living arrangement in metropolitan Canada for 1981 and 1986.