Mark Andrew

On the Aggregate Housing Market Implications of Labour Market Change

Labor markets in the United Kingdom have undergone important structural changes in recent years. Given the close relationship between labor and housing markets, these changes are likely to have had knock-on effects to housing. This paper examines the quantitative evidence in this area in terms of aggregate housing demand and house prices, set in a life-cycle framework. The paper finds evidence of structural change in the 1990s in the traditional relationships used to predict house price movements which can, at least partly, be attributed to changes in the labor market. Copyright 1998 by Scottish Economic Society.

The Changing Route to Owner Occupation: The Impact of Student Debt

The 1990s saw a considerable fall in young adult homeownership rates in Britain. There is a concern that the future might hold further falls as a result of reforms to financing higher education. Using estimates from a housing tenure choice model, this paper conducts micro-simulation analyses to assess how this change could affect young adult homeownership transitions. The simulations reveal that increased student debt levels and the new repayment profile and their interaction with lender-imposed borrowing restrictions delay a first-time homeownership transition. The extent of the delay primarily depends upon the expected earnings profile, but lender criteria and general rises/falls in real house prices are also important. The analysis suggests that there will be much greater variation in the timing of house purchase between different groups of future graduates, brought about by increased graduate earnings heterogeneity, homeownership affordability schemes targeted toward specific types of households, and parental financial assistance.

The Changing Route to Owner-occupation: The Impact of Borrowing Constraints on Young Adult Homeownership Transitions in Britain in the 1990s

The reduction in young adult homeownership rates in Britain in the 1990s was partly caused by demographics and partly by a shift in the income distribution. Most of their relative income deterioration occurred in the first part of the decade, yet young adult homeownership rates continued to fall. This paper extends that analysis by empirically examining whether lender-imposed borrowing restrictions also contributed to their decline, especially since house prices rose rapidly in the second half of the decade. A duration model examining the timing of a transition into homeownership is estimated on a sample of young adults derived from the British Household Panel Survey. Credit constraint terms are constructed and included in the model. A simulation analysis is undertaken to assess the extent to which binding credit constraints were responsible for the observed falls. It is concluded that borrowing restrictions delayed young adult transitions into homeownership.

Regional market size and the housing market: insights from a new economic geography model

The increased availability of information about housing and labour markets at finer spatial scales opens up possibilities for applied research to model various types of spatial relationships associated with housing affordability. The aim of this paper is to encourage empirical research to estimate the type of spatial relationships described by new economic geography (NEG) models. NEG models were designed to provide general equilibrium analysis of urban agglomeration, but may also be used to shed insights into the degree to which housing and labour markets could be integrated spatially. We extend the Helpman and Hanson NEG theoretical model by relaxing the stringent restrictions imposed on housing consumption and the size of the housing sector, so that it may be used to address the housing affordability issue. We highlight the differences that these refinements have on the implications for earnings, rents (house prices) and migration. In particular, simulations are undertaken to assess the conditions under which a responsive and non-responsive construction sector worsens or improves housing affordability and affects region size.

Neoclassical Models of the Housing Market

Modern economic analysis of housing markets applies a neoclassical framework to explain phenomena. Neoclassical housing models are underpinned by microeconomic foundations. Central to the analysis is the concept of the housing user cost of capital, which links the consumption and investment aspects of housing. Neoclassical housing models have been used to explain house price determination, housing tenure choice, and levels of housing consumption. In addition to taxation and subsidy benefits to homeownership, the neoclassical model may be extended to capture various causes of frictions in the housing market, for example, credit rationing, search costs, and annualised transactions costs, which deter frequent trading.