East European Regional   

26

Housing Sector Assistance Project   

3. What are the key determinants of potential and effective demand?  What are the

key barriers to translating potential into effective demand?

4. How can the effects of these determinants (and of barriers) be measured and

quantified?

 As has been noted, annex I presents a discussion of traditional macroeconomic

and microeconomic approaches to estimating demand functions; the annex is designed

for economists, econometricians, and statisticians, but the essence of the argument is

presented here in (hopefully) nonstatistical terms.  Following the discussion of  traditional 

approaches to estimation, the annex provides a discussion of  more realistic  models of

demand for transition countries.  In essence, traditional (econometric) approaches to

estimation should be modified, to the extent possible, to take into account various barriers

between potential and effective demand.

Some of the possible constraints to effective demand in transition were introduced

in section 2.0.  A summary list of the relevant potential barriers includes the following:

!

Supply constraints on housing types and locations, resulting in serious

constraints on mobility and tenure choice.

!

Liquidity constraints: households (previously subject to remuneration partly in

kind) have not accumulated sufficient wealth for down payments.

!

Distortions in the cost of housing: distortions due to rent control or other factors.

!

The relative cost of housing and consumer durables. Also the portfolio of

consumer durables is still being adjusted, as are the relative prices.

!

The relative cost of mortgage credit (high real mortgage lending rates) certainly

discourages borrowing; subsidies available through contract saving schemes

may also discourage market rate borrowing.

!

Expectations/attitudes regarding indebtedness and payments for housing: low

expectations regarding the proportion of household income that should be spent

on housing. Also, payment burdens worldwide are higher than they are (or have

been) in transition countries; lenders may be unduly conservative with regard

to LTVs, and so may households.

The Demand for Housing

A traditional approach to estimating the aggregate (macroeconomic) demand for

housing requires an understanding of the  desired  stock of housing, the actual stock of