Too Many Houses, Too Few People: Demographic Optimism, Housing Oversupply, and Falling House Prices across Advanced Economies

Yongheng Deng, Tomoo Inoue, Kiyohiko Nishimura and Chihiro Shimizu

No DP26-2, RCESR Discussion Paper Series from Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University

Abstract: In population bonus periods, optimism about future housing demand fuels rapid construction and self-reinforcing price appreciation. In population onus periods, pessimism-amplified by the systematic failure of governments to revise demographic projections downward in a timely manner-drives structural oversupply, rising vacancy rates, and prolonged price stagnation. We formalise this mechanism through a present-value model in which the demographic regime asymmetrically shifts expected rent growth and the discount rate, and test it using annual panel data for 16 advanced economies over 1975- 2019. Pooled mean-group estimation shows that a rising old-age share significantly depresses long-run real house prices; the unanticipated ageing component (-8.826) substantially exceeds the government-projected component (-5.005). A rising youth share raises prices. Demographic structure further conditions monetary policy transmission: interest-rate cuts stimulate housing markets far more strongly in young than in ageing economies.

Keywords: demographic optimism; demographic pessimism; population bonus and onus; housing vacancy and oversupply; demographic forecast errors (search for similar items in EconPapers)
JEL-codes: E31 J11 R21 R31 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2026-03
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