Baby Booms and Asset Booms: Demographic Change and the Housing Market

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Authors: Marc Francke & Matthijs Korevaar
Abstract:
How do changes in population structure such as population aging affect housing markets? This paper exploits historical demographic changes to identify the effect of urban demographic change on housing costs, building on half a millennium of data on house prices, rents, and demographics. We show that a one percentage point increase in the current five-year birth rate increases house prices about 25 years later by 5%, but reduces prices 60-65 years later by the same amount. Linking the age of individuals to their housing decisions, real estate transactions and investment portfolios, we show these changes are primarily driven by the age-dependent demand for housing as investment asset. Correspondingly, we find large impacts of demographic structure on rent-price ratios, but smaller impacts on rent prices.