I am trying to write my performance assessment about income and price elasticities of demand but I have a hard time figuring out if a house is a normal necessity good or a normal luxury good.

Everyone needs a house, however, no one needs a mansion. So which is it, is a house a normal necessity good or a normal luxury good?


I would expect necessity goods to have an income elasticity between 0 and 1 in keeping with Engel's Law, which was originally observed for food (an obvious necessity good).

Housing indeed exhibits this feature because poorer households spend a larger fraction of their income on housing. That makes housing look like a necessity good. E.g.,

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(source: http://www.lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.aspx)


Dependent on what part of the world you live in and are you living within your means. I assume you are from a first world country, it is generally expected that you own a house by any standards (Homelessness is frowned upon by society generally whether we like to admit it or not), so I would class this as a Normal Necessity Good.

  • $\begingroup$ There are other possibilities as well as owning a house and homelessness, eg renting, shared ownership, living in house owned by parents. $\endgroup$ – Adam Bailey Nov 19 '17 at 10:37

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