Rue de la Banque no. 41: Is demographics the housing cycle?

This Rue de la Banque provides evidence of the strong cyclical impact of demographics on housing investment. The common wisdom is that population growth affects the housing stock in the long run. However, in the short run, the growth rate of the age-group (20-49 years old) influences the demand for new dwellings: it is cyclical and correlated with the cycle of the ratio of housing investment to GDP. There is a causal effect in this correlation. Demographic changes are a better predictor of the residential investment rate than any macroeconomic or financial variable we control for. These new findings offer an original perspective on the role of migration and demographics in the housing boom that preceded the 2007-2008 crisis in OECD countries. Finally, if current population projections are right, except if migration were to support population growth, housing investment will grow at a slower pace than GDP and contribute to slowing down GDP growth in the next 15 years.