Population Aging and Housing Prices: New Definitions for Old Age
Ye Jin Heo, PhD Candidate in International EconomicsBrown Bag Lunch
Ye Jin Heo
This paper empirically studies the effect of population aging on real house prices in OECD countries over the 40 years. Specifically, it addresses three questions: 1) how does increase in the share of the old-age population affect real house price? 2) how does the effect change if the old-age population is defined differently? 3) is there any nonlinear effect of population aging on real house price? I construct two alternative measures of aging based on life expectancy and the effective retirement age to estimate the effect of each alternative old-age population on real house price. The result indicates that population aging is negatively associated with real house price, but the magnitude of the negative effect varies depending on how the old-age population is defined. Also, it finds that the effective retirement age matters more in explaining the effect of aging on real house price than the age 65, which is a standard threshold age in the literature that distinguishes the old-age population from the rest of the adult population. Last but not least, real house price is predicted to decrease when the old-age population is defined in a standard way, but if it is defined by the effective retirement age, the future real house price is predicted to increase or at least move around the current level.