Determinants of time-on-the-market in a changing real estate environment – The relationship between housing demand, demographic change and liquidity

Demographic change has direct and indirect impact on the development and size of households and their housing demand. Households are becoming much smaller on average. Overall, the proportion of one- and two-person households will continue to rise. In 2040, four out of ten people, or more than a third, will live alone or in pairs. Due to the lack of appropriate apartments, this trend will have impact on the liquidity of apartments. On the other hand, there will be a surplus of larger apartments, which will become less attractive. This is also partly due to the enormous increase in rents in agglomeration areas. In addition to this, the single households will demand less space, even though living space has absolutely increased. In this respect, the present study tries to analyse the interrelationships between changes in household size and housing demand on liquidity of residential apartments, both for sale and rent. The research question therefore is, whether the change in population structure or housing preferences has an influence on the Time-on-Market (ToM) of real estate. There is no explicit model that incorporates both housing demand (choice of apartment type) and demographic variables on liquidity. The paper uses the well-established multivariate Cox proportional hazard model that explains the factors that influence the letting process of an apartment as a probability function while incorporating the dwelling- and market-specific characteristics. A broader knowledge of liquidity and the underlying factors is essential for assessing future market movements with respect to the buying, selling and rental process of real estate. Beyond exploring the hedonic characteristics, the paper should contribute to the existing literature by enhancing the modelling quality and introducing additional socioeconomic and sociographic variables to TOM modelling.