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Faculty of Economics

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Attanasio, O. P., Bottazzi, R., Low, H. W., Nesheim, L. and Wakefield, M.

Modelling the demand for housing over the life cycle

Review of Economic Dynamics

Vol. 15(1) pp. 1-18 (2012)

Abstract: We model individual demand for housing over the life cycle, and show the aggregate implications of this behaviour. Individuals delay purchasing their first home when incomes are low or uncertain. Higher house prices lead households to downsize, rather than to stop being owners. Fixed costs (property transactions taxes) have important impacts on welfare (a wealth effect) and house purchase decisions (substitution effect). In aggregate, positive house price shocks lead to consumption booms among the old but falls in consumption for the young, and reduced housing demand; positive income shocks lead to consumption booms among the young and increased housing demand.

JEL Codes: D91, R21, G11

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