The behavioural and welfare implications of housing demand under rationing

This study examines on United Kingdom budget data the sensitivity of policy and welfare conclusions to the introduction of quantity constraint on Housing demand within a utility consistent framework. The paper proposes a rationed demographic demand system, based on extension of the idea of virtual price, and presents evidence that such a model could prove useful in the precise estimation of equivalence scales on budget data with limited price variation. The demand parameter estimates and their welfare implications are quite sensitive to the introduction of rationed demand. Unlike in previous studies, the rationed demand system fails to reject linear preferences.I am grateful to Arie Kapteyn and an anonymous referee for helpful written comments on an earlier version. I also thank seminar participants at the Second Annual Congress of the European Society of Population Economics at the University of Mannheim, West Germany in June 1988, at the University of NSW and Melbourne in Australia, and Victoria University of Wellington in New Zealand for useful discussions. I retain responsibility for all errors that remain.