The determinants and macroeconomic effects of housing market




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Since 2009, the rising house price has become a huge financial burden to young generations. Any fluctuations in housing market could cause not only a volatility of household’s saving and consumption behavior, given over 30 percent of total wealth consists of real property, but also a population change of a city. Therefore, the healthy of the housing market has become the numerous researchers and policy makers’ main concern. This dissertation is to investigate several social and economics issues in housing market and migration. We examines: 1) the impact of demography and technology on housing market and social security; 2) the determinants of the house price movement; 3) the relationship between housing cost and migration decisions. To address the first question, the paper develops a general equilibrium life-cycle deterministic model with house transaction cost. Complete competitive housing market gives us a perfectly elastic supply curve. Therefore, productivity improvement drives the house price to decrease, but the movement of demand caused by the changes of demographic structure shows no effect on house price. Social security is significantly affected by the demographic change. 1 percent decrease in population and 5-year early retirement cause the individual social benefit to decline by 25 percent and 30 percent, respectively. Life-profile analysis shows that population aging encourages households to the increase in both financial assets and housing assets. Evidence from real business cycle analyses yields similar results. Housing sector shocks explains over 98 percent of the variation of house price. Land price shock and government expenditure shock only account for little fluctuations of housing market. However, the effect of government spending on overall employment in the short-run is non-ignorable. The side effect of improvement of productivity in nondurable sector is the increase in structural unemployment. Finally, this paper also examines of the impacts of housing cost and income level on migration decision through a theoretical counterfactual simulation and an empirical analysis. Residents in big city are more sensitive to the housing cost, and 1 percent increase in house price causes a decrease in population by 0.015 percent in New York. While, people in small city show no significant response to this rising cost. This finding is consistent with the empirical results. High housing cost imposes a negative effect on the possibility of a location being chosen. In addition, people in first quartile and fourth quartile income group are more likely to move out compare to people with middle income.



Housing market, Migration, House price