ON HOUSING SERVICES

The paper reconsiders the theoretical motivation for studying the hous ing market by means of the concept ''housing services.'' The analysis uses a model of consumer behavior that takes into full. account the he terogeneity of housing. An assumption about the hedonic price function allows the researcher to define a scalar indicator of housing quality , that can be interpreted as the quantity of housing services availabl e at a constant price per unit if a second assumption about the hedoni c price function is made. The central result can be considered as an e xtension of Hicks' composite commodity theorem to cases in which expen diture on a bundle of characteristics is a nonlinear function of the q uantities of these characteristics. The assumptions needed for aggrega tion impose testable restrictions on the hedonic price function, and a procedure for testing their validity is proposed. The basis of this a pproach is an econometric method for estimating functions with discret e explanatory variables without imposing assumptions about their funct ional form. This allows one to test the validity of the aggregation co nditions essentially without joint assumptions. The method is applied on the basis of data for the two largest Dutch cities. The conditions for a constant price per unit of housing services are violated. Aggreg ation of bundles of housing characteristics into a scalar measure, whi ch may alternatively be interpreted as a quantity of housing services available at a varying price per unit, appears to be possible for the data used. However, the concept housing services loses much of its con venience if it cannot be used in combination with a constant price per unit. (C) 1998 Academic Press.