Why do home prices and rents rise faster in some communities than others? And what happens to local banks when more working-age people move into the economy?
Those questions are at the heart of research by Yusuf Raji, a PhD candidate in Finance at the Lubar College of Business.
Raji recently passed his dissertation proposal, “The Causal Effects of Labor Force Demographic Growth on Local Economic Outcomes: Evidence from Housing and Banking Markets.” His research examines how changes in the size of the working-age population affect housing prices, rents and competition among local banks.
“My research speaks directly to issues of housing affordability and financial inclusion,” Raji said. “Demographic trends can influence both the affordability of housing and access to financial services, which have a direct impact on households and communities.”
To understand those effects, Raji looks to an unusual source: historical birth patterns. Because the number of people born decades ago helps determine the size of today’s working-age population, birth data can help researchers predict demographic changes without relying only on current economic conditions.
His findings suggest that when the labor force cohort aged 30-39 grows, increased housing demand can put upward pressure on home prices and rents. Perhaps more surprisingly, those effects do not appear to be immediately reflected in housing prices, even though demographic trends can often be anticipated.
“One finding that stood out was how persistent the effects of demographic changes can be,” Raji said. His research suggests that barriers in housing markets can prevent supply and prices from adjusting quickly to predictable population changes.
Demographic growth also affects where people keep their money. Raji found that community banks with strong local ties may have an advantage in attracting deposits as populations grow.
“This highlights how local relationships and market knowledge can provide a competitive advantage in attracting and retaining customers,” he said.
The findings could help communities prepare for growth rather than respond after housing shortages or other pressures emerge. Policymakers might anticipate where additional housing will be needed, while banks could identify communities where demand for financial services is likely to grow.
Raji’s interest in practical economic questions reflects his background in economics, accounting and finance, along with seven years of industry and academic experience before beginning his doctoral studies.
“For me, the most impactful research is research that resonates with everyday life and helps us better understand real-world challenges,” he said. It is an approach he hopes to continue throughout his career, with a particular focus on housing affordability and financial inclusion.