The aim of the article we are about to read is to make an estimation of both the price and income elasticity of demand for housing characteristics using information of properties appraised in the city of Barcelona during the period 1998 to 2001. For this case, thedifferences between indirect and direct aid on public sector budget measures for housing must be taken into account. Direct aid takes the form of interest rates subsidies, as well as access to qualified loans and personal grants. On the other hand, indirect aid is that derived from the tax treatment given to the usual home in the Spanish tax system. In Spain, 87% of budget aid for housing is allocated to indirect aid to subsidize home purchases, whereas in the Euro Zone this percentage ranges from 10 to 25%. The authors estimate the price and income elasticity of demand for a series of basic housing characteristics (quantity, quality and location), in order to make policy recommendations about the type of housing units that are the most desirable to be subsidized.
The method finally chosen to use is a hedonic price models. This regression makes it possible to estimate constant quality prices. So, following this model, the methodological approach will be divided into two parts: the modeling of the hedonic price regression and the modeling of the demand equation. The dependent variable is the total value of the property, while the explanatory variable uses about eleven characteristics for each house analyzed.
Once the regression was made, it was observed that the compensated price elasticity indicated inelastic demands. So, keeping expenditure and the rest of the prices constants, an increase in the price of one of the characteristics results in a less proportional decrease in the quantity demanded of that characteristic. Obviously, if citizens can keep their utility constant, an increase in the price of floor area will also lead to a less than proportional decrease in the quantity of demanded floor. In conclusion, a policy of small subsidized housing units is justified, although with certain minimum standards of quality and in no event in marginal areas.