Demographic Changes and Housing Prices: The Case of New England

Arindam Bandopadhyaya, Xingyuan Fei and Yu Zhang

This paper investigates the relation between housing prices and demographics in the U.S., using New England as sample. The authors find that there is a significantly negative relation between housing prices and a relatively ageing population during 1991-2010, after controlling for the significantly positive effect of real Gross Domestic Product (GDP) growth. It is also found that the changing demographic effect is more pronounced in the period of 2001-2010 in which the baby boomer generation became older. The authors further make projections of median housing prices until 2025 and find that housing prices may increase moderately if normal economic conditions prevail and demographic changes take place at a similar pace as compared to the past few years. However, there may be sharp increases (decreases) in housing prices if economic growth quickens (slows down) and the population ages at a slower (faster) rate. The paper supports the meltdown view that there is a negative relationship between demographic changes and asset prices by focusing on housing prices in New England and suggests potentials for policy makers to stimulate the local housing market.