Abstract
What is the contribution of demographic changes to house prices? We answer this question by analyzing various channels through which changes related to demographics may affect aggregate housing demand and supply differently. Specifically, we focus on the changes in life expectancy, international immigration, urbanization and fertility. As these changes are sustainable and predictable, understanding the role they play in the real estate markets is important for predicting future house prices. We develop and estimate a general equilibrium supply-demand model to evaluate the contribution of these factors and find that they can account for 40.54% of the observed house price growth from 1970 to 2010. Adopting the projection of these four factors provided by Census and the United Nations, we use our model to predict house prices through 2050. We find that the house price will keep growing from 2010 to 2050 by 4.42%–18.85%, depending on urbanization rates and the level of immigration.
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