The Engel Curve of Owner-Occupied Housing Consumption

Erling Røed Larsen

Journal of Applied Economics, 2014, vol. 17, issue 2, 325-352

Abstract: 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.

Date: 2014
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DOI: 10.1016/S1514-0326(14)60015-5

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