Christopher Schang, European University Institute (Job Market Seminar)

"Demographic Change, House Prices, and the Real Rate"

Abstract

Aging populations, driven by low fertility rates and increasing longevity, are a defining trend in most advanced economies. This demographic shift has significant implications for asset prices, particularly housing, a primary asset for many households. This paper employs a general equilibrium model with housing and mortgage choice over the life-cycle and a construction sector to study the effects of demographic change on house prices. Calibrated to German microdata, I document the following: In line with past trends (1) demographic factors have contributed significantly to the long-term rise in housing prices. Notably, indirect general equilibrium effects, such as falling real rates, have played a substantial role. (2) Based on projected demographic trends, the model suggests that over the remainder of the 21st century, declining populations and rising old-age dependency ratios place downward pressure on real house prices while (3) the composition of wealth shifts from capital to housing wealth mitigating the drop in real rates.

Contact person: Jeppe Druedahl