Demographics Negative for Real Estate in Developed Economies for Next 40 years

April 22, 2011


Ageing and asset prices

by Előd Takáts

Working Papers No 318
August 2010


The paper investigates how ageing will affect asset prices. A small model is used to show that economic and demographic factors drive asset, and in particular house, prices. These factors are estimated in a panel regression framework encompassing BIS real house price data from 22 advanced economies between 1970 and 2009. The estimates show that demographic factors affect real house prices significantly. Combining the results with UN population projections suggests that ageing will lower real house prices substantially over the next forty years. The headwind is around 80 basis points per annum in the United States and much stronger in Europe and Japan. Based on the analysis, global asset prices are likely to face substantial headwinds from ageing.



I have the utmost confidence in Bernanke’s ability to create inflation higher than a mere 80bps over the next 5-10 years as well as his motivation to create enough inflation to make his toxic mortgage back securities whole. Also, the paper is relevant to China’s housing bubble due to their poor demographic outlook stemming from the one child policy. Meanwhile, there are favorable demographic trends in places such as India, Brazil, and elsewhere.

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