ESTIMATING THE DEMAND FOR HOUSING, LAND, AND NEIGHBORHOOD CHARACTERISTICS

This paper provides estimates of the structure of demand for individua l housing and neighbourhood characteristics and for land in two Britis h cities. We estimate a hedonic price function, and from this obtain t he implicit prices of house attributes. These prices are used to estim ate a demand system for each city. These perform well, and enable us t o calculate price and income elasticities for each of the non-dichotom ous characteristics and for land. To counteract criticisms of demand e stimates derived within the hedonic framework a method is developed fo r selecting an appropriate set of instrumental variables. Estimates de rived from this method, however, differ only slightly from those obtai ned using the conventional techniques. Several features of these estim ates provide insights into the unusual characteristics of the British housing market, the effects of constraints imposed by land use plannin g, and the effects of changing income distribution on the structure of demand.