An Estimation of Long-Term Housing Demand Considering Cohort Effect

Abstract

Most models of aggregate housing demand assume that households follow demand estimated with a single cross-sectional observation. However, housing demand depends not only on the current social and economic context characterized by stage of life course, or the age, but also on the past socio-economic experiences and physical properties differently formed by generations, or the birth cohort. This study proposes a methodology to estimate aggregate housing demand that reflects inter-generational differences of housing consumption. Using the Korean Labor and Income Panel Study (KLIPS) and Korean Census data, a methodology was developed to determine inter-generational differences of housing demand on the basis of a modified Mankiw and Weil (M-W) model. In the model, birth cohort rather than age group of household members are used as exploratory variables. The estimates are then applied to the process to estimate future housing demand. The results reveal that the post baby-boom generations including the baby boomer are reducing their housing consumption compared to previous generations, and that the aggregate housing demand is smaller than what was estimated using the M-W model.