Skip to main content
×
Home

The impact of changing demographics and pensions on the demand for housing and financial assets*

  • ALEŠ ČERNÝ (a1), DAVID MILES (a2) and L'UBOMÍR SCHMIDT (a3)
Abstract
Abstract

The main aim of this paper is to analyse the impact of shifting demographics and changes in pension arrangements in a model that includes housing as both an investment asset and a consumption good. We consider the impact on welfare, and on macroeconomic aggregates, of some specific pension reforms. Using a calibrated OLG model with several sources of uncertainty, we find that the impact of ageing and of reform of social security upon the demand for housing and the level of owner occupation is substantial. We find that pension reform has a very significant impact on the demand for, and price of, housing. The interaction between pension reform and housing is a neglected subject and one which the results we present suggest is important.

Copyright
References
Hide All
Auerbach A. and Kotlikoff L. (1987) Dynamic Fiscal Policy. Cambridge University Press.
Banks J. and Johnson P. (1994) Equivalence scale relativities revisited. The Economic Journal, 104(425): 883890.
Barker K. (2004) Review of Housing Supply. Final report, Her Majesty's Treasury, UK.
Barsky B., Juster F. T., Kimball M., and Shapiro M. (1997) Preference parameters and behavioral heterogeneity: an experimental approach in the health and retirement study. Quarterly Journal of Economics, 12(2): 537579.
Berkovec J. and Fullerton D. (1992) A general equilibrium model of housing, taxes, and portfolio choice. The Journal of Political Economy, 100(2): 390429.
Breyer F. (1989) On the intergenerational Pareto efficiency of pay as you go financial pension systems. Journal of Institutional and Theoretical Economics, 145: 643658.
Campbell J. Y. and Cocco J. F. (2003) Household risk management and optimal mortgage choice, Quarterly Journal of Economics, 118(4): 14491494.
Campbell J., Cocco J., Gomes F. and Maenhout P. (2001) Investing retirement wealth: a life-cycle model. In Campbell John Y. and Martin Feldstein (eds), Risk Aspects of Investment-Based Social Security Reform. Chicago: Chicago University Press.
Cocco J. (2005) Portfolio choice in the presence of housing. Review of Financial Studies, 18(2): 535567.
De Nardi M., Imrohoroglu S., and Sargent T. (1999) Projected US demographics and social security. Review of Economic Dynamics, 2(3): 575615.
Dimson E., Marsh P., and Staunton M. (2002) Triumph of the Optimists: 101 Years of Global Investment Return. Princeton University Press.
Dohmen T., Falk A., Huffman D., Sunde U., Schupp J., and Wagner G. (2005) Individual risk attitudes: new evidence from a large, representative, experimentally validated survey. IZA (Forschungsinstitut zur Zukunft der Arbeit) Discussion Paper 1730.
Family Resources Survey (2003), Department for Work and Pensions, UK.
Henderson J. V. and Ioannides Y. M. (1983) A model of housing tenure choice. American Economic Review, 73(1): 98113.
Horioka C. Y. (2001) Are the Japanese selfish, dynastic or altruistic? Japanese Economic Review, 53(1): 2654.
Hubbard R. G., and Judd K. L. (1987) Social Security and Individual Welfare: Precautionary Saving, Borrowing Constraints, and the Payroll Tax. American Economic Review, 77(4): 630646.
Iacoviello M. (2005) House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle. The American Economic Review, 95(3): 739764.
IMF (2004) World Economic Outlook. Washington, Chapter II.
Imrohoroglu A., Imrohoroglu S., and Joines D. (1995) A life cycle analysis of social security. Economic Theory, 6: 83114.
Imrohoroglu A., Imrohoroglu S., and Joines D. (1999a) A dynamic stochastic general equilibrium analysis of social security. In Kehoe T. and Prescott E. (eds), The Discipline of Applied General Equilibrium. Springer-Verlag.
Imrohoroglu A., Imrohoroglu S., and Joines D. (1999b) Computational models of social security: a survey. In Marimon R. and Scott A. (eds), Computational Methods for the Study of Dynamic Economies. Oxford University Press.
Kotlikoff L., Smetters K., and Walliser J. (1999) Privatizing social security in the United States – comparing the options. Review of Economic Dynamics, 2: 532574.
Kotlikoff L. and Summers L. (1981) The role of intergenerational transfers in aggregate capital accumulation. Journal of Political Economy, 89(4): 706732.
Lustig H. N. and Van Nieuwerburgh S. G. (2005) Housing collateral, consumption insurance, and risk premia: an empirical perspective. Journal of Finance, 60(3): 11671219.
McClements L. D. (1977) Equivalence scales for children. Journal of Public Economics, 8(2): 191210.
Miles D. K. (1997) A household level study of the determinants of income and consumption. The Economic Journal, 107(440): 125.
Miles D. K. (2003) The UK mortgage market: taking a longer term view – interim report. Her Majesty's Treasury, UK.
Miles D. K. (2004) The UK mortgage market: taking a longer term view – final report. Her Majesty's Treasury, UK.
Miles D. K. and Černý A. (2006) Risk, return and portfolio allocation under alternative pension systems with incomplete and imperfect financial markets. The Economic Journal, 116(2): 529557.
Office for National Statistics (2004a) Housing Statistics.
Office for National Statistics (2004b) Interim Life Tables for Great Britain.
Sefton J., Dutta J., and Weale M. (1997) A calibrated model of saving and income distribution for the UK. NIESR Discussion Paper 123.
Storesletten K., Telmer C., and Yaron A. (1999) The risk sharing implications of alternative social security arrangements. Carnegie Rochester Conference Series on Public Policy, 50: 213259.
Turner A. (2004) The Pensirons Commission, first report, HMSO.
Weale M., Dutta J., and Sefton J. (2001) Income distribution and income dynamics in the United Kingdom. Journal of Applied Econometrics, 16: 599616.
Yao R. and Zhang H. H. (2005) Optimal consumption and portfolio choices with risky housing and borrowing constraints. Review of Financial Studies, 18(1): 197239.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Pension Economics & Finance
  • ISSN: 1474-7472
  • EISSN: 1475-3022
  • URL: /core/journals/journal-of-pension-economics-and-finance
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Metrics

Full text views

Total number of HTML views: 2
Total number of PDF views: 18 *
Loading metrics...

Abstract views

Total abstract views: 123 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 25th November 2017. This data will be updated every 24 hours.