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Population and house prices in the United Kingdom

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  • Creina Day

Abstract

Real house prices rise in the United Kingdom amid growing concern of an impending correction. The rate of household formation has increased with strong population growth, due to elevated rates of natural increase and net migration, and lack of growth in average household size, due to a rise in single-person households with population ageing. This paper presents an overlapping generations model of housing, endogenous labour, savings and growth to analyse the effect of an increase in the household formation rate and speculative demand under rational expectations on house prices in a general equilibrium. We find that real house prices rise over time if the rate of household formation outstrips the rate of housing supply, but do not follow a speculative bubble path in the long run. The results explain why the upward trend in real house prices reflects market fundamentals and has continued despite population ageing as the number of working and retired households grows relative to the number of older people seeking to sell.

Suggested Citation

  • Creina Day, 2018. "Population and house prices in the United Kingdom," CAMA Working Papers 2018-21, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2018-21
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2018-05/21_2018_day.pdf
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    Cited by:

    1. Benjamin Kwakye & Chan Tze Haw, 2020. "Interplay of the Macroeconomy and Real Estate: Systematic Review of Literature," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 262-271.
    2. Zhou, Qian & Shao, Qinglong & Zhang, Xiaoling & Chen, Jie, 2020. "Do housing prices promote total factor productivity? Evidence from spatial panel data models in explaining the mediating role of population density," Land Use Policy, Elsevier, vol. 91(C).
    3. Day, Creina, 2019. "House prices post-GFC: More household debt for longer," Economic Analysis and Policy, Elsevier, vol. 64(C), pages 91-102.

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