Demographic cycles, migration and housing investment

The correlation between residential investment over GDP and the growth rate of the 20-49 age group in OECD countries suggests a demographic explanation of housing cycles: booms and busts arise because this age group invests more in housing than in other GDP components. However, correlations may be driven by reverse causality between migration and housing. We instrument by past demographic data to avoid the endogeneity bias and find evidence of a strong significant causal relationship. By reconstructing migration flows by age group, we then point out that the bias is in fact small and that migration is also likely to be a key driver of housing cycles.