In addition to demand for the stock of dwellings, it is useful to know the

potential flow demand for dwellings the number demanded to be built

within a given time period.  This number is interpreted simply as the

amount of new construction demanded per unit of time (in fact, it is equal

to demand for new construction plus net additions to the stock from

conversions and mergers).  Investment demand is closely related it is

equal to the flow demand for dwellings multiplied by the average value

per dwelling.  The flow demand is defined as:

C

  (

(

N

(

)

% *

N

(11)

t

t

&

N

t

&

1

t

&

1

where 

C 

t

= construction in time period

 t

, which is equal to the adjustment

toward desired demand 

(

 (

N

*   

t

N

) plus replacement of dwellings from

t 1

the stock, which are removed at a rate 

*

.  One may think of  desired

construction  as the full adjustment plus replacement (

N * 

t

N   

t 1

+ 

*

N 

t 1

= 

N * 

t

+ (

*

 1) 

N 

), where the amount by which adjustment fails to occur

t 1

is (1 

(

) (

N * 

t

N

).

t 1

This formulation suggests that factors which impede the speed of

adjustment from actual to desired demand constitute the source of many

of the potential barriers that impede translation of potential demand into

effective demand.  The  naive  models described above are all useful as

descriptive devices, albeit with modest analytical soundness.  More

useful and realistic models would take account of particular institutional

and historical features of the transition economies to explicitly model the

key barriers to translating potential into effective demand.

5.0

MORE REALISTIC MODELS OF THE DEMAND FOR HOUSING AND CREDIT

As discussed above, factors affecting the speed of adjustment toward  desired

demand  are a theoretically important determinant of the failure to translate potential

demand into effective demand.  Within the transition economies, 

the single most striking

factor associated with slow adjustment toward  desired demand  is low residential mobility

rates

.  In 1990, annual rates of residential mobility in Warsaw were estimated to be 2.6

percent.  Within 18 cities studied in the Housing Indicators Project with highly restrictive

policy frameworks, annual mobility averaged only 5 percent, while among 18 cities with

 enabling  policy frameworks, mobility averaged 10 percent four times as high as that in

Warsaw.

Consequently, studies focusing on determinants of residential mobility would appear

to have great utility in gaining an understanding of the barriers to effective demand.  In a

microeconomic model of residential mobility, households will move if their utility after a

I 12