SEARCH, HEDONIC PRICES AND HOUSING DEMAND

The conventional model of the housing market does not take into account the search process for a suitable housing unit. Based on a dynamic search theory, this paper develops and estimates a truncated regression model of the rental housing market with stochastic and unobserved truncation points. Our model provides a joint estimation of the hedonic price and the reservation rent equations. The results turn out to be superior to the ordinary least squares estimates of either the traditional housing demand functions or the hedonic price equation.