On January 18, 2012, in Economist Commentaries, by Lawrence Yun, Chief Economist
Since the fall of the Berlin Wall in Germany, real estate prices in what was formally known as East Germany have barely risen over the past 20 years. The reason is simple: many Germans left East for West in search of better jobs. This hollowing-out phenomenon is not good for real estate.
Real Estate prices in Japan have been in the doldrums for at least the past 20 years as well. Part of the reason is due to the crash in bubble real estate prices in the 1980s. But there is also another simple reason: population in Japan has essentially stopped growing. The same number of people cannot create additional demand for real estate, unless they want to buy second and third homes.
In regards to the United States, some have claimed that the large number of people retiring and an eventual dying off of the baby boomers will mean less housing demand in the future. This ignores one simple fact about the broader population and not just the baby boomers. Every year about 3 million additional people live in the U.S. The projection by the Census further calls for more people for the foreseeable future with the total tally rising to 436 million by 2050 from the current total of 311 million people. Such growth assures steady housing demand.
Perhaps more encouraging or disturbing, depending upon your point of view, is the trend in the world population. For centuries upon centuries, the world population never exceeded a billion people. Then in 1900 there were 1.6 billion people living on this planet. In 2000, population had nearly quadrupled to 6 billion people. Most demographers believe that further population gains will occur throughout this century before eventually topping out and stabilizing. The stabilizing population, according to experts, is to be around 9 to 10 billion people. Hard to think about what all this means. Demand for real estate is automatically created. But how many by that time will be able to say that they own a property of their own?
Other questions to ponder: What will be the price of wild-caught sushi? Is there another Steve Jobs in the wings? Before panicking, consider this visual by the National Geographic, who calculated that the whole world population today could fit, shoulder-to-shoulder, into Rhode Island, the smallest state in the U.S. Another simpler way to think about the everyday impact is that going from the current 7 billion to 10 billion is not even a doubling of population. So imagine a condition where you see twice as many people around your local town and spatial area. Is that too much or it that absorbable?