The Impact of Population Ageing on House Prices: A Micro-simulation Approach

This paper attempts to estimate the impact of population ageing on house prices. There is
considerable debate about whether population ageing puts downwards or upwards pressure
on house prices. The empirical approach differs from earlier studies of this relationship, which
are mainly regression analyses of macro time-series data. A micro-simulation methodology is
adopted that combines a macro-level house price model with a micro-level household
formation model. The case study is Scotland, a country that is expected to age rapidly in the
future. The parameters of the household formation model are estimated with panel data from
the British Household Panel Survey covering the period 1999-2008. The estimates are then
used to carry out a set of simulations. The simulations are based on a set of population
projections that represent a considerable range in the rate of population ageing. The main
finding from the simulations is that population ageing – or more generally changes in age
structure – is not likely a main determinant of house prices, at least in Scotland.