House prices and demographic change. Canadian evidence

We examine the links between demography-induced changes in housing demand and real house prices using postwar data for Canada. Although Canadian demographic patterns are very similar to those in the United States, real house prices exhibit a substantially different trajectory: they rise in the early 1970s, and then fall nearly forty per cent between 1975 and the mid-1980s. We estimate simple time-series models relating house prices to demographic factors, and unlike previous estimates for the U.S. by Mankiw and Weil (1989), we find a statistically insignificant and in most cases negative association between demographic demand and house prices. These results suggest caution in extrapolating historical U.S. trends to the next century, while also illustrating that substantial real declines in house values are not impossible.