Modeling Household Formation and Housing Demand in Denmark using the Dynamic Microsimulation Model SMILE

We utilize the newly developed dynamic microsimulation model SMILE (Simulation Model for Individual Lifecycle Evaluation) to make a long-term forecast of detailed housing demand both in terms of key aggregate figures and compositional features of future Danish housing demand. SMILE simulates the life course of the full Danish population with respect to three main types of events: demographic, socioeconomic, and housing-related events. Demographic events include ageing, births, deaths, migration, leaving home, and couple formation and dissolution - all of which are key indirect drivers of future housing demand. Socioeconomic events such as education attendance and attainment, and labor market events are also important indirect drivers of housing demand because they are closely linked to the timing and direction of households' moving patterns. Finally, households move spatially and between dwelling types based on historically observed moving patterns and estimated transition probabilities by using the tree-based classification model. The key results from the simulations are: changing patterns of cohabitation with a decreasing average household size is projected to increase the number of households by roughly one-third above what the general increase in population indicates. Increasing urbanization leads to an increasing demand for multi-dwelling houses. An ageing population is expected to pent-up the demand for smaller dwellings, especially rental housing.