THE DECOMPOSITION OF CONSUMPTION DEMAND AND INVESTMENT DEMAND IN HOUSING PURCHASE

Abstract

Past literature suggests that investment and consumption demand functions make up the demand in housing purchases. In this study, it is presumed that renters have only consumption demand while owner-occupiers have both consumption and investment demands. This study hypothesizes a regression model to determine the investment demand in Singapore based on the responses of 400 households residing in their primary residence. This is the first study where investment demand is derived taking the difference in home sizes of households of similar characteristics and demographics, but have different tenure i.e. rent or own. The model includes common housing size factors like household size, age of household head, tenure, region etc. The investment demand is found to be 11.79 sqm, and the model highlights the important factors that affect investment demand. Results suggest that tenure, household size and land area are the key factors in influencing home size decisions. The model is subsequently tested on using a propensity score matching method and has been proven to effectively derive investment demand.