Affordability, housing demand and housing policy in urban India

Designing housing policies and programmes requires a careful estimation of household affordability and demand for housing. The efficiency of housing s ubsidies would depend on price elasticities of housing demand. Different ho useholds have different perceptions of housing demand based on their econom ic and demographic factors. We estimate the demand function of housing for urban India using step econometric analysis. The first step estimates the h edonic price index for states and in the second step the demand for housing is estimated as a function of economic and household characteristics. The problem of multicollinearity is observed with the data, Ridge regressions a re used to correct for multicollinearity and to obtain efficient estimates. The results indicate that the housing demand is inelastic with respect to income and price. The income elasticity is 0.75 while price elasticity is s lightly less than -1, A further analysis to estimate income and price elast icities for different income classes as well as states has also been carrie d out, We comment on the efficiency of housing subsidies based on our resul ts. The paper concludes with some policy questions.