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Pricing Rent for Social Housing Under Uncertainty

Sheng-Hau Lin and Chia-Tsong Chen

Advances in Management and Applied Economics, 2020, vol. 10, issue 4, 4

Abstract: Setting appropriate rent levels for social housing facilitates policy implementation and the effective allocation of resources for social programs. The conflict between pricing rents at the lowest possible level and the principle of self-sufficiency is an indication that market mechanisms must be considered in pricing rent for social housing. Based on the principle of self-sufficiency and uncertainty in the rental market, we adopted the Samuelson–McKean model to explore the optimal rent for social housing under uncertainty. Simulation results of Taipei, Taiwan indicate that districts with higher uncertainty have a higher threshold of rental income. The rent threshold ranged from 9.16% (Daan District) to 178.39%. (Neihu District) when uncertainty was considered in the model. These results indicate the importance of uncertainty in pricing and evaluating social housing programs. Sensitivity analysis verified that our results are consistent with findings in the literature on real options analysis. This implies that the robustness of the model and of the fact that it takes uncertainty into account make it suitable for pricing the rent of social housing.  JEL classification numbers: D81, R31, R32 Keywords: Housing Policy, Pricing Rents, Uncertainty, Taiwan.

Date: 2020
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