We estimate the demand function of housing for Bombay Metropolitan Region in a two-step econometric analysis. The first step estimates the hedonic price index for different regions in Bombay, and in the second step the demand for housing is estimated as a function of economic and household characteristics. The results indicate that housing demand is inelastic with respect to income and price. The income elasticities for owners and tenants are around 0.33 and 0.38, respectively, while the price elasticities are -0.21 and -0.75, respectively, for owners and tenants. We also estimate income and price elasticities for different income classes. The paper concludes with policy prescriptions.
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