y 

  = household income

P

h

 = price per unit of housing (from hedonic price or repeat sales studies)

Z 

 = sector of household characteristics

and a, 

,

, 

y

,

p

, and 

(

 are to be estimated

b. If cross section and time series data are to be pooled, rewrite (1), deflating

as necessary

V

(

Y

,

,

y

P

p

%

1

a

h

Z

(

(2)

P

P

P

o

where:

P

 = consumer price index

P

 = price index for non housing goods

O

2. Alternative estimates for the price of housing can be developed based on:

a. Hedonic prices

b. Repeat sales prices

c. User cost (see Sections 3.2.B above, and 4.1.3, below)

3. Mortgage credit demand may be estimated most simply by assuming that it is

proportional to demand for owner occupied housing, where the constant of

proportionality,

 l

, is just the average or  typical  loan to value ratio:

m

(

l V

(

(3)

Note:  If a user cost definition of housing price is used, the total user cost of

owner occupied housing is:

UC

rM

%

(

t

%

c

%

d

%

i

(1

&

l

)

&

g

)

V

h

p

m

(4)

where:

r 

= mortgage interest rate

M

 = mortgage amount

t

p

= property tax rate

c

m

= maintenance cost (percent of value)

d 

= depreciation rate (percent of value)

I 

= interest rate on non housing investments

g 

= expected capital appreciation rate on housing

I 8