Squeezed in and squeezed out: the effects of population ageing on the demand for housing

Abstract

This article examines how increasing longevity affects the housing choices of working age and retired people using a heterogeneous agent overlapping generations model that incorporates owneroccupier and rental sectors, credit constraints, detailed tax regulations and a housing supply sector. Increasing longevity generally leads to declining home ownership rates among young people, with bigger declines if the government increases taxes and pensions rather than relying on additional private provision of retirement income. The model suggests raising tax rates to provide pensions can reduce the welfare of all agents, even those who are net beneficiaries, because they tighten credit constraints on young people.

Australia's Growth in Households and House Prices

“…In reality, many of the current old generation are not selling their housing to the next generation until they die. This is likely to exacerbate the problem of rising prices, at least in the medium term, as shown by Coleman () in an overlapping generation framework where longevity increases duration of retirement until death upon which housing is redistributed to the younger cohort.…”

“…Their prediction is consistent with the empirical studies criticising M‐W, which found either a much smaller effect than M‐W or no effect of ageing on house prices. Furthermore, Coleman () develops an overlapping generations (OLG) model where the duration of a retired household increases with longevity to show that more people aged over 65 years increases total demand for housing.…”

Australia's Growth in Households and House Prices

“…This is likely to exacerbate the problem of rising prices, at least in the medium term, as shown by Coleman (2014) in an overlapping generation framework where longevity increases duration of retirement until death upon which housing is redistributed to the younger cohort. Using a simple overlapping generations framework where the current old generation sell their housing when they cease to be households to the younger generation of households, this article demonstrates the potential influence of the household formation rate on house prices.…”

Housing, the ‘Great Income Tax Experiment’, and the intergenerational consequences of the lease

“…For instance, young people may leave home at a different time in response to the tax rules, because of their effect on house prices and rents, or the divorce rate may change. Coleman (2010Coleman ( , 2014 households that have a mortgage and who expect to be mortgage free at some point in their lives, as the opportunity costs of purchasing a house depend on future as well as current tax rates. The correct opportunity cost of purchasing a house for households that have a mortgage is the average of the pre-tax interest rate and the after-tax interest rate, where the weights are the fractions of time the person expects to have a mortgage relative to the time they expect to be mortgage free.…”

“…Schematic description of taxes on capital income 3 Real rents and real house prices, 1975-2014 17 Real Property Prices in New Zealand, 1923-2014 Rent/House-price ratio versus real mortgage rates 1975-2014 24 Average new house size, Australia, New Zealand and the United States, 1974-2014. Square metres.…”