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Demographic trends, the rent-to-price ratio, and housing market returns

Author

Listed:
  • Wang, Yuansheng
  • Yang, Haoxi
  • Chen, Zhizhen
  • Feng, Yun

Abstract

We characterize the relationship between the rent-to-price ratio, expected returns, and expected rent growth in a dynamic housing valuation model, where the middle-aged-to-young (MY) ratio determines the slowly evolving mean of the rent-to-price ratio. The link between demographic trends and the housing market dynamics is established by analyzing how individuals’ housing demand varies across age cohorts using household-level survey data. Empirical results show that deviations of the rent-to-price ratio from its slowly evolving mean, which is determined by the MY ratio, exhibit pronounced predictive power for returns but weak predictive power for rent growth. Further analysis reveals heterogeneous evidence across sample cities.

Suggested Citation

  • Wang, Yuansheng & Yang, Haoxi & Chen, Zhizhen & Feng, Yun, 2025. "Demographic trends, the rent-to-price ratio, and housing market returns," Journal of Banking & Finance, Elsevier, vol. 176(C).
    • Handle: RePEc:eee:jbfina:v:176:y:2025:i:c:s0378426625000573
    DOI: 10.1016/j.jbankfin.2025.107437
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    More about this item

    Keywords

    Rent-to-price ratio; Demographics; Predictability; Housing demand;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G50 - Financial Economics - - Household Finance - - - General

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