Estimation of the Tenants' Benefits Residing in Public Rental Housing with Unit Size Constraint in Korea

Abstract

Hicksian income equivalent variation (EV) has often been used to measure tenants' benefits in evaluating public housing programmes. A number of papers have so far attempted to apply Hicksian EV under the implicit assumption of no constraint on unit size of public housing. As a result, overestimation of tenants' benefits probably occurs where unit size constraints exist, as in Korea's public housing programme. Thus, the purpose of the paper is to measure Hicksian EV with the constraint in unit size of public housing by formulating a revised Hicksian EV equation and comparing the result with constraint-free cases. It is found that Hicksian EV with constraint in unit size decreases relative to that of the constraint-free cases. The extent of EV decrease depends on the income elasticity of demand for housing and the difference between the optimum consumption of public housing under rent support (demand wanted) and the actual constraint of unit size (demand fulfilled).