Demographic Cycle, Migration and Housing Investment: A Causal Examination

Abstract

We study residential investment over GDP in 20 OECD countries since 1980, and show that it is closely associated with the growth dynamics of population aged 20-49. We develop a new method to uncover the causal effect of the growth of the 20-49 age group. Using past demographic data as an instrument to avoid potential endogeneity between migration and the housing cycle, we find that a 1% increase in the population aged 20-49 increases the residential investment rate by 1.3 pp. Demographic changes are a better predictor of the residential investment rate than any macroeconomic or financial variable we control for.

Keywords: business cycle, housing, demography, migration

JEL Classification: E32, J11, R21