Demand for housing and demographics

Migration to urban areas, population growth lead to higher demand for housing

NORTHAMPTON:

Demographics play an important role in influencing house prices.

Seminal research on US house prices by N Gregory Mankiw and David N Weil in 1989 showed that the quantity of housing demanded exhibits a sharp jump between the ages of 20 and 30, as a large proportion of households becomes owner-occupiers, which flattens at around the age of 40 and declines thereafter.

These age groups might vary between countries, but the central assumption is that senior households consume less housing than middle-age households. As a result, a lower proportion of prime-age buyers leads to a decline in housing prices.

There exists a wide body of literature which looks at various factors contributing to the housing prices (supply, demand, institutional development of finance and mortgage markets), however, the role of demographics in influencing housing demand and prices has received little attention.

How do demographic changes affect housing prices?

Demographic changes affect housing prices through a number of different channels. A notable few are the impact of changes in life expectancy, international immigration, urbanisation and fertility.

In advanced economies, sustained increases in life expectancy over the years resulting in ageing population, declining fertility and changing family structures can be argued to have a negative impact on aggregate house prices.

A recent report of the Brooking institution on American housing shows that American demographics have substantially changed over the years.

Among other trends, the multigenerational and mixed family households have risen as American households are “doubling up” to reduce housing costs. However, this has not kept pace with the commensurate increase in the housing stock.

This finding is also corroborated by a recent report of the Greater London Authority, which shows that the aggregate housing stock has not kept pace with population increases in various global cities such as London, New York, Sydney and Vienna.

The case of Pakistan

Pakistan’s population explosion and rapid urbanisation has put immense pressure on decent and affordable housing. The latest census data of 2017 shows that Pakistan’s population increased by 57% from 1998 to 2017.

An IGC report “A Framework for Affordable Housing in Pakistan” states that with the urban population expected to grow 2.3 million per year over the next 20 years, this translates into a demand for 360,000 households, at 6.3 individuals per household.

A demographic breakdown of the population from the Pakistan Bureau of Statistics dating 2007 shows that almost 53% of the population lies in the youngest age group ranging from 0-19 years.

Applying the lifecycle hypothesis of Mankiw & Weil (1989), with little or no likelihood of the younger age group becoming owner-occupiers of housing, housing prices are generally expected to remain high due to substantial demand from the higher age groups (age 30 and beyond).

Policy responses

Increasing pressure on Pakistan’s urban areas due to migration and population expansion results in increasing demand for housing stock. However, no proportionate policy response exists to deal with the provision of affordable and decent housing in the country’s expanding urban cities.

Moreover, a lack of open access data from statistical agencies also reflects a general lack of attention or priority towards data-driven decision-making.

Access to quality and timely data sources can prove to be very beneficial for public sector authorities not only in terms of providing adequate and affordable housing but more importantly in regulating any potential house price bubbles.

The writer is a doctoral candidate at the Bartlett, UCL

 

Published in The Express Tribune, February 7^th, 2022.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.