HOUSING DEMAND IN URBAN AREAS OF PAKISTAN

Abstract

This dissertation focuses on exploring the determinants of the housing demand in the urban areas of Pakistan. It also delves into the impact of different income groups on the housing demand. The hedonic price model was used for the estimation of analysis. The data pertaining to 14 Pakistani urban areas was borrowed from Pakistan Social and Living Standard Measurement (PSLM) survey 2004-05 and 2010-11, respectively. Overall, two models were used in the analysis. The first one was to estimate the Hedonic rent model that helped in finding out that in high-income group households the rent was greater than the middle-income group households, which was increased in 2004-05 and decreased in 2010-11. The study was applied on lower income groups as well. Affordability has same effect on low and middle-income groups, but for high-income group it turned out to be positive yet the value of coefficient remained on the lower side. This comparison helps in designing appropriate policies in accordance with the current state of housing market. It was found that different factors contributed differently wards housing demand whereas the economic cycles were contrast during both periods of the study. Furthermore, this study provides a policy framework for addressing the factors related to housing demand. In order to control the selectivity bias between the tenure choice and the quantity of housing services demanded, Heckman‟s two-step selection procedure was used. The Probit model was opted for calculating the margins for the probability of a house‟s ownership. Permanent and Transitory incomes were estimated based on the permanent income hypothesis. Another aspect, uncommonly found in studies from developing countries including Pakistan, was separately determining the effects of permanent and more importantly transitory income on housing demand. The aggregate analysis underlined that income, house price, affordability; demographic factors such as age of the head of household, education, household size, number of earners and marital status are the key factors in determining the housing demand in Pakistan.