The term 

rM

 is the interest cost of a mortgage and the second term is  other

housing costs,  including the cost of foregone interest on the downpayment 

I

(1

 l 

) 

V

. For a fixed loan to value ratio, if 

M 

= 

lV

 and:

UC

(

rl

%

t

%

c

%

d

%

i

(1

&

l

)

&

g

)

V

h

p

m

(5)

where the bracketed term is the  price per unit of housing  to be used in demand

estimation, mortgage demand depends on mortgage interest rates and down

payment requirements, as well as other elements of user cost, even within this

simple  proportional  credit demand model.

2

4.2

Macroeconomic Demand for Housing and Credit

In macroeconomic demand models, emphasis is not placed on estimating the rent

or value of housing for which households are willing to pay, but rather on estimating the

demand for stocks (or flows) of housing demanded, where  stocks  are often measured in

terms of numbers of dwellings. Models can be estimated of the demand for a stock of

housing, a stock of corresponding mortgages, or a flow of housing as follows:

(1)

Demand for dwellings

a. Housing stock demand

Models of housing stock demand generally posit a relationship between

the  desired  housing stock and a number of economic and demographic

variables; e.g.,

P

N

(

f HH

,

y

,

Z

,

h

t

t

t

t

(6)

P

o

t

where:

N * 

t

= desired dwelling units at time

 t

HH

 = number of households at time 

t

t

y  

t

= income at time t

Z  

t

= a vector of demographic characteristics of household heads and

household composition

(

P

 / 

h

P

 ) 

O

= relative 

t 

price of housing (compared to other goods) at time 

t

2

More realistic models of demand for mortgages can be based on the observation that mortgage lending

is often a  preference of both borrowing and lending which permits other goods and services to be financed with

`excess demand' for credit.   See C. Jones,  The Demand for Home Mortgage Debt,  

Journal of Urban Economics

,

January 1993, pp. 10 28.

I 9