The Impact of Changing Demographics and Pensions on the Demand for Housing and Financial Assets

Abstract

The main aim of this paper is to to analyse the impact of shifting demographics and changes in pension arrangements in a model which includes housing both as an investment asset and a consumption good. We consider the impact on welfare, and on macroeconomic aggregates, of some specific pension reforms. Using a calibrated OLG model with several sources of uncertainty we find that the impact of ageing and of reform of social security upon the demand for housing and the level of owner occupation is substantial. We find that pension reform has a very significant impact on the demand for, and price of, housing. The interaction between pension reform and housing is a neglected subject and one which the results we present suggest is important.

Keywords: pension reform, portfolio allocation, housing, OLG model

JEL Classification: H31, H55, C61, G11