When Birth or Death Hits Home: Demographic Change and the Housing Market

How do population aging and urbanization affect housing markets? This paper exploits historical demographic shocks to identify the causal effect of urban demographic change on housing costs, building on half a millennium of data on house prices, rents and demographics from Paris and Amsterdam. We show that a one percentage point increase in the current five-year birth rate increases house prices about 25 years later by 5%, but reduces prices 60-65 years later by the same amount. These changes are primarily driven by the age-dependent demand for housing as investment asset: we find large impacts of demographic structure on rental yields, but smaller and less significant impacts on bond yields and rent prices. However, we document large impacts of demographic changes on rent prices in the short-term. Exploiting outbreaks of the plague as an exogenous shock to population, we identify a short-term annual elasticity of population on rent prices of about 1.25