In many 'single-family' houses, the owner has the option to let a part of the house to another party or to use the entire house for her own purposes. This paper uses a stochastic utility framework to provide a theoretical analysis of this dichotomous choice. The paper also shows how an empirical model that is consistent with the theoretical model can be formulated and estimated using suitable parameterisation. Within the empirical analysis, we test, and reject, the hypothesis of locally linear utility functions that are frequently used in models of discrete housing choices. Furthermore, the estimated model is used to show how the tax treatment of owner-occupiers affects the utilisation of the stock of single-family houses.
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