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The Effects of Demographic Changes and Supply Constraints on Dutch Housing Prices

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  • Alex van de Minne

Abstract

The purpose of this paper is to analyze the effects of demographic changes on the housing market in the Netherlands. We look specifically at the different effects of demographic growth and decline on house price levels and changes in a panel data set. In the real estate literature we find that urban growth is not a mirror image of urban decline, due to the durable character of housing. While durability of supply may not be a crucial element of urban dynamics for growing municipalities, it is essential for the nature of a municipality in decline. Due to the durability of housing demographic decline is reflected more in prices than in population. Whenever a city grows buildings would still have a delivery lag and agents would still have an imperfect foresight, resulting in housing price increases untill a new long_run equilibruim is reached. We use a panel data set consisting of variables on housing prices, vacancy, demographics (population, households and household size) and economics (income, education level and unemployment) over 402 Dutch municipalities over the years 1995 to 2009. Population change is entered in the model in a piecewise linear form to allow for differential effects in expanding versus declining municipalities. We estimate that every 1% decrease in population results in a housing price drop of 1.74%. For every 1% increase in population we estimate a 0.25% housing price drop. At first glance it seems strange that an increase in population results in lower housing prices. However, we find it to be more of a supply side effect rather than a demand side (population) effect. Local supply constraints ensure demand being translated more in housing prices than in population. Whenever supply is added (and thus the population grows) housing prices drop.

Suggested Citation

  • Alex van de Minne, 2011. "The Effects of Demographic Changes and Supply Constraints on Dutch Housing Prices," ERES eres2011_85, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2011_85
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    References listed on IDEAS

    as
    1. Eichholtz, Piet & Lindenthal, Thies, 2014. "Demographics, human capital, and the demand for housing," Journal of Housing Economics, Elsevier, vol. 26(C), pages 19-32.
    2. Haurin, Donald R & Hendershott, Patric H & Kim, Dongwook, 1993. "The Impact of Real Rents and Wages on Household Formation," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 284-293, May.
    3. Borsch-supan, Axel & Pitkin, John, 1988. "On discrete choice models of housing demand," Journal of Urban Economics, Elsevier, vol. 24(2), pages 153-172, September.
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    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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