Demographic changes, technology growth, and retirement policy reform: Implications for U.S. housing dynamics

Abstract

As the population aging process continues, concerns about how this situation impacts the housing market and social security rise. To address this question, this paper presents a developed and calibrated general equilibrium life-cycle model incorporating two production sectors to analyze the impacts of demographic structure changes and retirement policy reforms on housing price fluctuations and household choices. The model calibrated to the U.S. macroeconomic data between 1968 and 2018 suggests that in an economy with unlimited land supply, the housing supply curve exhibits perfect elasticity, rendering demographic changes insignificant in housing price fluctuations, while technological advancements lead to decreased prices. A 1% growth in productivity in both sectors results in a 2.6% decrease in house prices. Furthermore, a 1% decrease in population and a 5-year early retirement led to significant reductions of 25% and 30% in individual social security payments and 9% and 18% in interest rates, respectively. This suggests that during a recession caused by demographic structural changes, households become more conservative and prioritize precautionary saving strategies, increasing savings and investing more in housing assets. Consistent with empirical findings, during an economic boom, a decline in the capital-output ratio and the real housing price suggests a decrease in savings and housing asset investment. The rise in consumption drives the capital demand of the non-housing sector to increase, stimulating business expansion and labor inflow.