"old House" Live-utility Analysis

Many economic research papers have contributed in different ways to the housing price studies, but most paper neglected to explore into the basic housing characteristics that are also important. Being a good example of heterogenetic commodity, house deserves careful studies to its unique properties so that a micro research base can be established. This paper intends to study and classify the housing characteristics by introducing a two dimensional utility framework, one dimension can be viewed from the supply side and thus classified as location utility and architecture utility due to its physical identities; the other dimension can be viewed from the demand side that divides the utility bundle into safety utility, comfort utility and economic utility. These two dimensional utility varables interact with one another and thus a complete set of housing utility bundle can be formed. Under the utility framework, each house can be assigned with a housing utility value compared with a benchmark house sample in each of the housing sub-markets.House can be seen both as consumption good and investment good. Based on the discounted cash flow formula, house price can be viewed as the sum of a consumption price ( P~C ) and an investment expectation price ( P~E ), i.e. P =P~C +P~E .P~C is the discounted function of rent, where rent is directly determined by housing characteristics; P~E is also derived from the scarcity of housing characteristics, thus the price function can be established which links the housing characteristics with its utility value. The paper then applies the theory to the sub-market called "old public residence", which were built some 20 years ago. With huge depreciation both in functional and physical conditions, the old houses' architecture utility value is dropping while the location utility value keeps rising. The mismatch causes inefficiency in the allocation of housing resources, as a result, the rent to price ratio stays at very low level. The paper then offered some suggestions to the improvement of the old houses.