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China's housing prices are about to peak?
November 14, 2021 18:25 Caijing Magazine
391
Original title: China's housing prices are about to peak?
Providing new sources of economic growth to drive per capita GDP growth upward and aging accelerating downward is a race of time. The winner not only determines housing prices, but also determines China’s economic prospects for the next 30 years.
Picture/Visual ChinaPicture/Visual China
The decline of the demographic dividend (aging and declining birthrate) is a long-term and rigid constraint facing China and the global economic growth. Historically, wars, famines, germs, and natural disasters have been important factors affecting changes in population size and structure. The peaceful development and technological progress after the Second World War enabled mankind to overcome various "survival crises" to a large extent, and the average life expectancy increased significantly. As the "baby boom" generation gradually ages after the war, the demographic dividend that was once transformed into a "demographic debt" has profound implications for economic growth and the prices of major assets.
China's demographic dividend "comes fast and goes fast". In the asset allocation structure of Chinese residents, real estate is particularly important. The experience of nearly a hundred years in Western countries shows that housing prices and demographic dividends (producers/consumers, that is, working-age population/non-working-age population) are generally positively correlated. Based on the changing trend of China's population structure in the next 30 years, this article estimates its impact on real estate prices. The results show that assuming other conditions remain unchanged, by 2030 and 2050, changes in population structure will reduce China's real real estate prices by about 6.71% and 20.1%, respectively, returning to the levels of 2016 and 2007, respectively.
In the allocation of residential assets, the proportion of real estate and the proportion of working-age population are positively correlated. The results estimated in this paper show that 20.71% (approximately 237,000 yuan) of the total assets of representative Chinese households need to be reinvested, which means that the country’s total assets of about 117.12 trillion yuan need to be re-allocated.
Population and property prices: 100 years of characteristic facts
Compared with other economic factors, the population is like a grass-grey snake line, which is hidden, detailed, and hidden in economic changes. Population and its relative structure is a slow variable, but its impact on assets is not a slow linear extrapolation. The macroeconomic forces such as economic growth, risks, and debt contained in the population structure are often released suddenly during the population transition period. Amplify the volatility of asset prices (Peng Wensheng, 2013).
As an important category of large-scale assets, the special attributes and status of real estate stem from its close connection with the financial system. From the perspective of real estate analysis, although factors such as liquidity and land supply will cover long-term trends within a certain period of time, population Change is a trending force that is difficult to change, and the cyclical change of real estate itself is closely related to population. The “population-sensitive investments” (Kuznets, 1930), including construction and cement, which are spawned by population growth, constitute the Kuznets cycle, which in turn triggers cyclical fluctuations in the economy and total supply.
For real estate, the key group is the working-age population. From a long-term perspective, the total population is very important, but the demographic structure is even more important for real estate. Different age groups correspond to different levels of real estate demand. The working-age population is the main force of economic production and the main force of real estate demand. The non-working population in population economics will have a negative impact on labor productivity, capital formation, and savings rate (Choudhry et al., 2016). Define the population between the ages of 15 and 64 as producers (also known as dependents), and define the population under 15 and over 65 as consumers (ie dependents). Producers/consumers The higher the ratio, the richer the demographic dividend, the higher the labor productivity, and the smaller the burden of support.
The demand for real estate by the working-age population has two channels, direct or indirect, which directly refers to the demand for personal real estate purchase and allocation; indirectly refers to the effect on real estate prices by supporting economic growth. What is often overlooked is the impact of residents’ asset allocation on housing prices: in the period of abundant demographic dividends, labor supply is abundant, savings rise, capital conditions are abundant, and investment rates are also higher. This provides an additional source of economic growth, which also affects real estate prices. Formed a support. Analyzing the empirical relationship between population and housing prices in the United States, Japan, South Korea, Germany, the United Kingdom, and France in the past 100 years, we have summarized three characteristic facts.
The rise in real estate prices mainly occurs during the period when the ratio of producers to consumers is rising. Although the details are not the same and housing prices are not completely synchronized with the demographic structure, the rise in real estate prices in various countries is inseparable from the rise in the relative proportion of producers. Typical examples are Japan in the 1980s, Europe in the 1990s, and the United States at the beginning of the 21st century.
The fall in real estate prices generally corresponds to a fall in the ratio of producers to consumers. The decline in the producer/consumer ratio corresponds to the decline of the demographic dividend, which weakens the demand for real estate allocation and economic growth, typically in the 1960s in the United States and the period after 2000 in Japan.
Before and after the peak period of the demographic dividend, the volatility of real estate prices increased. The typical ones are Japan in the 1970s and 1990s, the United States around 2008, and Germany around 2000. The housing prices in the United States, Germany, France, the United Kingdom, and Japan have all experienced large fluctuations in the six years before and after the peak of the demographic dividend. The negative impact of the demographic transition on real estate is not entirely caused by the decline in housing demand. Peaks in the demographic structure often correspond to changes in debt risks and economic growth logic in the economy, which leads to the concentrated release of the downward forces in real estate.
America. Since 1900, with the producer/consumer exceeding 2 (dependency ratio less than 50%) as the standard, the United States has had three rounds of demographic dividend periods and two rounds of population debt periods. The demographic dividend period corresponds to the rise in housing prices, and the population debt period corresponds to the decline in housing prices.
The first round of housing price increases was from the 1930s to the early 1950s. There was a demographic dividend period in the United States for about 20 years, and actual housing prices rose by about 68%. The second round of rising period was from the early 1970s to the late 1980s. After the war, the baby boom entered the labor market, the labor force increased, inflation eased, and economic growth rose. The third round of rising period is from the end of the 1990s to the present, when the echo wave population entered the labor market.
From the perspective of the period of falling house prices, the two periods of falling house prices were between 1900 and 1929 and from the mid to late 1950s to the early 1970s. The United States was in a period of long-term population debt. The latter was the largest in the 20th century. During the period of population debt, with the increase in population burden, economic growth slowed in the 1960s, and inflation rose in the 1970s, both suppressed the increase in real real estate prices.
The volatility of real estate prices before and after the peak of the US population structure tends to intensify. The most obvious is the savings and loan crisis and the subprime mortgage crisis in 1989 and 2008, respectively. The savings and debt leverage accumulated during the demographic dividend period cannot be sustained. Even if it is not a direct trigger, population constitutes the underlying logic of the US real estate crisis.
What needs to be emphasized is the abnormal rise in real estate prices since the epidemic. In 2020, real estate prices in the United States have risen by approximately 10.2%, exceeding the peak in 2006. However, compared with 2006, American producers/consumers are already in a downturn, and the population dependency ratio has risen to more than 50%.
With reference to the history of housing prices in the United States, real estate prices fluctuate during each round of demographic dividends entering the transition period of population liabilities. Since the fifth Kangbo cycle, capital account opening and financial globalization have led to increased synchronization of global real estate prices. The weather vane is the U.S. real estate market. Changes in the Fed’s monetary policy have significant spillover effects. When financial conditions in the U.S. change or reverse, housing prices The risk will be transmitted to the Chinese market. As the Fed's unconventional policy withdrawal gradually approaches, the country needs to maintain relatively restrained liquidity conditions.
Japan. With changes in the demographic structure of Japanese real estate, there have been two typical cycles of ups and downs. The periods of rising real estate prices in Japan occurred in the 1960s to the early 1970s and the 1980s. The commonality is that the ratio of producers to consumers has risen, labor is sufficient, investment has risen, and the economy has grown rapidly. From 1955 to 1970, Japan’s average annual GDP growth rate reached 9.6%. The 1980s was Japan’s golden decade. The spiral resonance between the direct allocation of residential real estate and the expected economic growth has formed a very high support force for housing prices.
Both periods of falling real estate prices in Japan corresponded to periods of falling producer/consumer ratios. The first round of shorter housing price declines occurred in the mid to late 1970s, and the second round of housing price declines occurred after the 1990s to the present. One of the reasons for the rapid recovery of the market after a brief housing price drop in the 1970s is that the Japanese working population is still able to support real estate demand and prices. The fate of the second round of housing price decline is completely different. After the peak of the Japanese producer/consumer ratio in 1992, it began to decline, which led to a weakening of direct demand for real estate and slower economic growth. By 2018, housing prices had fallen back to the level of 1973.
South Korea. South Korea’s population-real estate relationship is closer to China. South Korea has also implemented family planning policies and real estate control policies. South Korea introduced the family planning policy in 1960, about ten years earlier than China. Although birth control ended in 1996, the number of births in South Korea has not stopped falling. By 2020, the fertility rate has fallen below one. South Korea also implemented stricter real estate control policies. Housing construction plans were introduced in the 1970s, public rental housing and low-rent housing were introduced in the 1980s, real estate price limit policies were introduced in the 1990s, and real estate taxes were levied after 2005, but they still cannot stop them. One of the reasons behind the increase in housing prices in South Korea is the demographic factor.
In 1987, South Korea's population structure shifted from the period of population debt to the period of demographic dividend, and the dependency burden was less than 50%. The entire 1980s was the golden decade of South Korea's economy, with sufficient labor, low wages, low exchange rates, and an average annual economic growth rate of over 8.5%. Although the Asian financial crisis experienced fluctuations in the late 1990s, the increase in South Korean real estate prices has continued to this day. The inflection point of the demographic dividend in South Korea was earlier than the inflection point of real estate prices. However, from the perspective of the construction side of South Korean real estate, after the demographic dividend peaked in 2014, South Korean real estate construction has already entered a downward period.
The positive correlation between real estate prices and the demographic dividend in Germany, France, and the United Kingdom is more obvious. From the early 1980s to 1995, the proportion of German producers began to rise, especially after the reunification of the two Germanys in 1989, the influx of immigrants and the increase in economic growth, German real estate prices and construction experienced a period of rapid rise. After 1996, the proportion of the German labor force fell to a local low in 2008, and real estate prices also fell by about 10%. After 2008, the ratio of German producers to consumers began to rise again, and real estate prices in Germany have also risen simultaneously.
The population cycles of France and the United Kingdom are relatively similar. During the 1980s and 1990s, the demographic dividends of the two countries rose, the economy grew rapidly, and real estate prices also rose rapidly. By 2008, the producer/consumer value of the United Kingdom and France reached their peaks. Volatility has also increased, especially the divergence between French real estate sales and prices has deepened.
China Case: Demographic Dividend and Real Estate Market
Compared with overseas experience, China has similarities and particularities. The similarity is that China is similar to the United States, Japan and other countries, and there has also been a baby boom after World War II, which has formed an endogenous force for real estate demand and high economic growth in stages. The period of rising housing prices in China generally corresponds to the period of increasing demographic dividend.
The peculiarities are that, first of all, the market-oriented reform of China’s real estate was later than the period of housing demand growth, which led to two groups of baby boomers rushing into the real estate market. The market-oriented reform of China’s real estate began in 1998, but the baby boom in the 1960s The housing demand of the population was already very tense at the end of the 1970s, and the release of the housing demand of residents was delayed for more than ten years. Second, China has only formed a period of relatively high, single-peak demographic dividend through its population-birth policy. The producer/consumer ratios of Japan, the United States, Germany and other countries all have bimodal characteristics, which has contributed to the long-term rapid growth of China's economy and housing prices. China’s demographic dividend stems from the high growth of the birth population since the 1960s and the birth control in the 1970s and 1980s. The rapid growth of the labor force and the reduction of child support burdens resulted in the formation of a concentrated demographic dividend after 2000. The essence of the demographic dividend is the transfer of resources across generations. It is contemporary people’s future consumption of debt. The investment originally used for childbirth is used for contemporary production and consumption (Chen Youhua, 2005). The current economy has achieved high growth, which is very important for housing prices. Formed strong support, but the single-peak demographic dividend means that China's future demographic decline will be more violent.
Observing China's real estate market from a demographic perspective, there are two special periods. The first period was around 1996 , when the producer/consumer ratio in China began to exceed 2, and the proportion of the production population increased, shifting from the period of population debt to the period of demographic dividend. In the 1960s and 1970s, the baby boomer population reached a period of vigorous working age and became a driving force for rapid economic growth and rising housing demand. Driven by demand and the external environment, in 1998, China began to stop the housing distribution system and establish a commercial housing market. The timing of China's real estate market reform basically coincided with the transformation of the demographic dividend.
The second time period is around 2011, when China’s demographic dividend reached its peak. The first ten years of the peak were a period of rapid rise in China’s real estate prices. After passing the high point of the demographic dividend, China’s real estate prices The rise has also fluctuated, and the economic growth rate has been adjusted and shifted.
It can be seen that China's population and housing prices have not completely deviated from the general laws. However, due to the particularity of the population-real estate relationship in China, the real estate market distribution mechanism was later than the demographic dividend rise period. Two rounds of baby boomers entered the housing demand market in the early 21st century, and the unimodal demographic dividend resulted in economic growth and housing prices. The long-term rise in the real estate industry has resulted in the peak time of real estate being later than the peak time of population.
Looking at China's real estate prices in the next 30 years from the perspective of population
There are two groups of consumers in the consumer population (non-working population): the elderly population and children. From the perspective of population economics, these are two groups of people with completely different economic meanings. Children can always grow into a working population over time. In history, after the peak of baby boom births, although the burden of support in society will increase in the short term and form a population debt, the population debt dominated by children is productive. Can be transformed into a demographic dividend in the future.
However, the elderly population is different. The elderly population cannot rejuvenate and become the labor force again. As time goes by, the human capital stock of the elderly population will be depreciated. An increase in the proportion of the elderly population will form an unproductive population debt. In this case, it is difficult for the population debt to be converted into a demographic dividend.
Compared with the historical demographic structure in the future, the most prominent change is the increase in the proportion of the elderly in the consumer population. In the next 50 years, it will be difficult for the population debt to transfer to the demographic dividend in the past 50 years. The producer-to-consumer ratio in the United States, Britain, Germany, France, Japan, South Korea and other countries will continue to fall. China’s producer/consumer ratio is expected to fall below 2 in 2030, and it is expected to fall to 2050. 1.48 means that the dependency ratio of the Chinese population will reach 67%, and 100 working population will have to raise 67 elderly or children.
For real estate, changes in the future demographic structure will have a direct consequence that prices will continue to be under pressure. In 2010, BIS analyzed the impact of population on housing prices with the help of about 40 years of population and real estate price data in 22 countries around the world. Its research shows that an increase in the elderly dependency ratio (the proportion of the elderly population in the labor force) will have a significant negative effect on real estate prices. Every 1% increase in the elderly dependency ratio will reduce the actual real estate price by 0.6%.
BIS uses this model and combines the population forecast data of the United Nations in the next 50 years to calculate the impact of future population changes on housing prices. By the middle of this century, the increase in the dependency ratio of the middle-aged population in the population structure will cause house prices in major economies to fall by about 20% to 120%, the United States by about 25%, South Korea by about 120%, and China by 95.8%. . However, due to issues such as the update of the UN population forecast data and sample sampling, the BIS estimate is significantly higher.
We re-built the model with reference to the BIS method, carried out sampling adjustment and fixed effect correction, and used the producer/consumer ratio to reflect the d change of the population structure. Our model shows that for every 1% drop in the producer-to-consumer ratio, real real estate prices will drop by 0.55%. In China, by 2030, a decline in the producer/consumer ratio will reduce real house prices by about 6.71%, and by 2050, real house prices will fall by about 20.1%. When other factors remain unchanged, this means that real housing prices will return to the level of 2016 in 2030 and to the level of 2007 in 2050.
The long-term trend of China's real estate allocation
From the perspective of life cycle, the typical individual pursues the maximization of effective use during his life cycle (Modigliani and Brumberg, 1954). Due to the mismatch between income and consumption, individuals tend to allocate assets of different types and risk characteristics at different stages of their lives, and adjust the allocation of risk assets. From a micro perspective, the housing allocation needs of the working-age population are at the highest peak in their lives. Reflected at the macro level, it means that the proportion of real estate allocation will also show a positive correlation with the demographic structure. The proportion of the labor force in society has risen. The growth rate of the population entering the housing market far exceeds the rate at which people over the age of 65 leave the housing market. The inflow of demand exceeds the outflow, which promotes the increase in the proportion of real estate allocation. Conversely, when the degree of aging increases, the proportion of the working-age population declines, and the outflow population in the real estate market is greater than the inflow population, which is reflected in the decline in the proportion of real estate allocation.
From 1960 to the present, the proportion of real estate allocation in the U.S. residential sector is generally positively correlated with the proportion of the working-age population. There are two peaks in the allocation of real estate by U.S. residents, in the 1980s and around 2007. The two rounds of allocation peaks correspond to American labor. The peak period of population proportion.
The proportion of the labor force in Japan peaked around 1992, and the allocation of real estate has declined rapidly since then. Germany and the United Kingdom have shown similar trends. There are two peaks in the proportion of the German labor force. They were around 1996 and 2010. The peaks of real estate redistribution by residents also appeared in these two periods. The rising period of the proportion of the working population in the UK basically corresponds to the rising period of real estate allocation. After 2002, the proportion of the working population in the UK has gradually stabilized, and the proportion of residents in the allocation of real estate has basically remained at about 45%.
In China's asset allocation research, there is no generally recognized data showing the proportion of residents' allocation of real estate, but there are several data for reference. The first is the urban household assets survey released by the Central Bank in October 2019, showing that housing accounts for 59.1% of total household assets. Second, data from the National Balance Sheet of the Academy of Social Sciences show that housing assets accounted for 40% of total household assets in 2019. Third, the "2018 China Urban Family Wealth and Health Report" released by China Guangfa Bank and Southwestern University of Finance and Economics shows that Chinese households' housing assets account for 77.7% of total household assets. We use data from the China Family Finance Survey Center (CHFS) here. The data shows that in 2019, the proportion of Chinese residential real estate allocation is 70.71%, and the average total assets of a typical family is 1,185,300 yuan.
From the perspective of the real estate allocation structure of foreign residents in 2019, the proportion of real estate allocation by Japanese residents is about 32%, the proportion of the United States is about 24%, Germany is 41%, and the United Kingdom is about 37%. China’s real estate allocation is obviously high. Based on the standard of reducing the proportion of real estate allocation from 70.71% to 50%, 20% of the total assets of ordinary Chinese households, about 237,000 yuan, need to be stripped from the real estate market for re-allocation. According to China's seventh census data in 2020, there are 494.16 million households in China. When summed up at the macro level, it means that the country's current assets of approximately 117.12 trillion yuan will need to be re-allocated in the next ten years, otherwise they may face assets. The possibility of ablation.
CHFS data shows that the proportion of real estate allocated by Chinese households has declined in 2019, which is 3 percentage points lower than in 2017. Population is an irreversible trend force. Over the past ten years, the allocation of heavy warehouses has enabled the buyers to obtain a huge wealth appreciation effect. The path dependence of asset allocation will lead to a lag in the adjustment of investment behavior. In theory, the withdrawal of residential funds from real estate is a slow release and adjustment process, but foreign experience shows that the adjustment of real estate allocation is often caused by the sudden release of debt risks. In the form of asset ablation, due to the rapid decline in China's demographic dividend, there is unavoidable downward pressure on China's real estate, which will affect the wealth effect of residents in the next 30 years.
What needs to be emphasized is that population is not the only power that determines real estate. The increase in per capita GDP can offset the negative effects of the shrinking labor population. Providing new sources of economic growth to drive the growth of per capita GDP and the acceleration of aging is a race of time. The winner not only determines housing prices, but also determines China's economic prospects for the next 30 years.
zhttps://news.sina.com.cn/c/2021-11-14/doc-iktzqtyu7268436.shtml
November 14, 2021 18:25 Caijing Magazine
391
Original title: China's housing prices are about to peak?
Providing new sources of economic growth to drive per capita GDP growth upward and aging accelerating downward is a race of time. The winner not only determines housing prices, but also determines China’s economic prospects for the next 30 years.
Picture/Visual ChinaPicture/Visual China
The decline of the demographic dividend (aging and declining birthrate) is a long-term and rigid constraint facing China and the global economic growth. Historically, wars, famines, germs, and natural disasters have been important factors affecting changes in population size and structure. The peaceful development and technological progress after the Second World War enabled mankind to overcome various "survival crises" to a large extent, and the average life expectancy increased significantly. As the "baby boom" generation gradually ages after the war, the demographic dividend that was once transformed into a "demographic debt" has profound implications for economic growth and the prices of major assets.
China's demographic dividend "comes fast and goes fast". In the asset allocation structure of Chinese residents, real estate is particularly important. The experience of nearly a hundred years in Western countries shows that housing prices and demographic dividends (producers/consumers, that is, working-age population/non-working-age population) are generally positively correlated. Based on the changing trend of China's population structure in the next 30 years, this article estimates its impact on real estate prices. The results show that assuming other conditions remain unchanged, by 2030 and 2050, changes in population structure will reduce China's real real estate prices by about 6.71% and 20.1%, respectively, returning to the levels of 2016 and 2007, respectively.
In the allocation of residential assets, the proportion of real estate and the proportion of working-age population are positively correlated. The results estimated in this paper show that 20.71% (approximately 237,000 yuan) of the total assets of representative Chinese households need to be reinvested, which means that the country’s total assets of about 117.12 trillion yuan need to be re-allocated.
Population and property prices: 100 years of characteristic facts
Compared with other economic factors, the population is like a grass-grey snake line, which is hidden, detailed, and hidden in economic changes. Population and its relative structure is a slow variable, but its impact on assets is not a slow linear extrapolation. The macroeconomic forces such as economic growth, risks, and debt contained in the population structure are often released suddenly during the population transition period. Amplify the volatility of asset prices (Peng Wensheng, 2013).
As an important category of large-scale assets, the special attributes and status of real estate stem from its close connection with the financial system. From the perspective of real estate analysis, although factors such as liquidity and land supply will cover long-term trends within a certain period of time, population Change is a trending force that is difficult to change, and the cyclical change of real estate itself is closely related to population. The “population-sensitive investments” (Kuznets, 1930), including construction and cement, which are spawned by population growth, constitute the Kuznets cycle, which in turn triggers cyclical fluctuations in the economy and total supply.
For real estate, the key group is the working-age population. From a long-term perspective, the total population is very important, but the demographic structure is even more important for real estate. Different age groups correspond to different levels of real estate demand. The working-age population is the main force of economic production and the main force of real estate demand. The non-working population in population economics will have a negative impact on labor productivity, capital formation, and savings rate (Choudhry et al., 2016). Define the population between the ages of 15 and 64 as producers (also known as dependents), and define the population under 15 and over 65 as consumers (ie dependents). Producers/consumers The higher the ratio, the richer the demographic dividend, the higher the labor productivity, and the smaller the burden of support.
The demand for real estate by the working-age population has two channels, direct or indirect, which directly refers to the demand for personal real estate purchase and allocation; indirectly refers to the effect on real estate prices by supporting economic growth. What is often overlooked is the impact of residents’ asset allocation on housing prices: in the period of abundant demographic dividends, labor supply is abundant, savings rise, capital conditions are abundant, and investment rates are also higher. This provides an additional source of economic growth, which also affects real estate prices. Formed a support. Analyzing the empirical relationship between population and housing prices in the United States, Japan, South Korea, Germany, the United Kingdom, and France in the past 100 years, we have summarized three characteristic facts.
The rise in real estate prices mainly occurs during the period when the ratio of producers to consumers is rising. Although the details are not the same and housing prices are not completely synchronized with the demographic structure, the rise in real estate prices in various countries is inseparable from the rise in the relative proportion of producers. Typical examples are Japan in the 1980s, Europe in the 1990s, and the United States at the beginning of the 21st century.
The fall in real estate prices generally corresponds to a fall in the ratio of producers to consumers. The decline in the producer/consumer ratio corresponds to the decline of the demographic dividend, which weakens the demand for real estate allocation and economic growth, typically in the 1960s in the United States and the period after 2000 in Japan.
Before and after the peak period of the demographic dividend, the volatility of real estate prices increased. The typical ones are Japan in the 1970s and 1990s, the United States around 2008, and Germany around 2000. The housing prices in the United States, Germany, France, the United Kingdom, and Japan have all experienced large fluctuations in the six years before and after the peak of the demographic dividend. The negative impact of the demographic transition on real estate is not entirely caused by the decline in housing demand. Peaks in the demographic structure often correspond to changes in debt risks and economic growth logic in the economy, which leads to the concentrated release of the downward forces in real estate.
America. Since 1900, with the producer/consumer exceeding 2 (dependency ratio less than 50%) as the standard, the United States has had three rounds of demographic dividend periods and two rounds of population debt periods. The demographic dividend period corresponds to the rise in housing prices, and the population debt period corresponds to the decline in housing prices.
The first round of housing price increases was from the 1930s to the early 1950s. There was a demographic dividend period in the United States for about 20 years, and actual housing prices rose by about 68%. The second round of rising period was from the early 1970s to the late 1980s. After the war, the baby boom entered the labor market, the labor force increased, inflation eased, and economic growth rose. The third round of rising period is from the end of the 1990s to the present, when the echo wave population entered the labor market.
From the perspective of the period of falling house prices, the two periods of falling house prices were between 1900 and 1929 and from the mid to late 1950s to the early 1970s. The United States was in a period of long-term population debt. The latter was the largest in the 20th century. During the period of population debt, with the increase in population burden, economic growth slowed in the 1960s, and inflation rose in the 1970s, both suppressed the increase in real real estate prices.
The volatility of real estate prices before and after the peak of the US population structure tends to intensify. The most obvious is the savings and loan crisis and the subprime mortgage crisis in 1989 and 2008, respectively. The savings and debt leverage accumulated during the demographic dividend period cannot be sustained. Even if it is not a direct trigger, population constitutes the underlying logic of the US real estate crisis.
What needs to be emphasized is the abnormal rise in real estate prices since the epidemic. In 2020, real estate prices in the United States have risen by approximately 10.2%, exceeding the peak in 2006. However, compared with 2006, American producers/consumers are already in a downturn, and the population dependency ratio has risen to more than 50%.
With reference to the history of housing prices in the United States, real estate prices fluctuate during each round of demographic dividends entering the transition period of population liabilities. Since the fifth Kangbo cycle, capital account opening and financial globalization have led to increased synchronization of global real estate prices. The weather vane is the U.S. real estate market. Changes in the Fed’s monetary policy have significant spillover effects. When financial conditions in the U.S. change or reverse, housing prices The risk will be transmitted to the Chinese market. As the Fed's unconventional policy withdrawal gradually approaches, the country needs to maintain relatively restrained liquidity conditions.
Japan. With changes in the demographic structure of Japanese real estate, there have been two typical cycles of ups and downs. The periods of rising real estate prices in Japan occurred in the 1960s to the early 1970s and the 1980s. The commonality is that the ratio of producers to consumers has risen, labor is sufficient, investment has risen, and the economy has grown rapidly. From 1955 to 1970, Japan’s average annual GDP growth rate reached 9.6%. The 1980s was Japan’s golden decade. The spiral resonance between the direct allocation of residential real estate and the expected economic growth has formed a very high support force for housing prices.
Both periods of falling real estate prices in Japan corresponded to periods of falling producer/consumer ratios. The first round of shorter housing price declines occurred in the mid to late 1970s, and the second round of housing price declines occurred after the 1990s to the present. One of the reasons for the rapid recovery of the market after a brief housing price drop in the 1970s is that the Japanese working population is still able to support real estate demand and prices. The fate of the second round of housing price decline is completely different. After the peak of the Japanese producer/consumer ratio in 1992, it began to decline, which led to a weakening of direct demand for real estate and slower economic growth. By 2018, housing prices had fallen back to the level of 1973.
South Korea. South Korea’s population-real estate relationship is closer to China. South Korea has also implemented family planning policies and real estate control policies. South Korea introduced the family planning policy in 1960, about ten years earlier than China. Although birth control ended in 1996, the number of births in South Korea has not stopped falling. By 2020, the fertility rate has fallen below one. South Korea also implemented stricter real estate control policies. Housing construction plans were introduced in the 1970s, public rental housing and low-rent housing were introduced in the 1980s, real estate price limit policies were introduced in the 1990s, and real estate taxes were levied after 2005, but they still cannot stop them. One of the reasons behind the increase in housing prices in South Korea is the demographic factor.
In 1987, South Korea's population structure shifted from the period of population debt to the period of demographic dividend, and the dependency burden was less than 50%. The entire 1980s was the golden decade of South Korea's economy, with sufficient labor, low wages, low exchange rates, and an average annual economic growth rate of over 8.5%. Although the Asian financial crisis experienced fluctuations in the late 1990s, the increase in South Korean real estate prices has continued to this day. The inflection point of the demographic dividend in South Korea was earlier than the inflection point of real estate prices. However, from the perspective of the construction side of South Korean real estate, after the demographic dividend peaked in 2014, South Korean real estate construction has already entered a downward period.
The positive correlation between real estate prices and the demographic dividend in Germany, France, and the United Kingdom is more obvious. From the early 1980s to 1995, the proportion of German producers began to rise, especially after the reunification of the two Germanys in 1989, the influx of immigrants and the increase in economic growth, German real estate prices and construction experienced a period of rapid rise. After 1996, the proportion of the German labor force fell to a local low in 2008, and real estate prices also fell by about 10%. After 2008, the ratio of German producers to consumers began to rise again, and real estate prices in Germany have also risen simultaneously.
The population cycles of France and the United Kingdom are relatively similar. During the 1980s and 1990s, the demographic dividends of the two countries rose, the economy grew rapidly, and real estate prices also rose rapidly. By 2008, the producer/consumer value of the United Kingdom and France reached their peaks. Volatility has also increased, especially the divergence between French real estate sales and prices has deepened.
China Case: Demographic Dividend and Real Estate Market
Compared with overseas experience, China has similarities and particularities. The similarity is that China is similar to the United States, Japan and other countries, and there has also been a baby boom after World War II, which has formed an endogenous force for real estate demand and high economic growth in stages. The period of rising housing prices in China generally corresponds to the period of increasing demographic dividend.
The peculiarities are that, first of all, the market-oriented reform of China’s real estate was later than the period of housing demand growth, which led to two groups of baby boomers rushing into the real estate market. The market-oriented reform of China’s real estate began in 1998, but the baby boom in the 1960s The housing demand of the population was already very tense at the end of the 1970s, and the release of the housing demand of residents was delayed for more than ten years. Second, China has only formed a period of relatively high, single-peak demographic dividend through its population-birth policy. The producer/consumer ratios of Japan, the United States, Germany and other countries all have bimodal characteristics, which has contributed to the long-term rapid growth of China's economy and housing prices. China’s demographic dividend stems from the high growth of the birth population since the 1960s and the birth control in the 1970s and 1980s. The rapid growth of the labor force and the reduction of child support burdens resulted in the formation of a concentrated demographic dividend after 2000. The essence of the demographic dividend is the transfer of resources across generations. It is contemporary people’s future consumption of debt. The investment originally used for childbirth is used for contemporary production and consumption (Chen Youhua, 2005). The current economy has achieved high growth, which is very important for housing prices. Formed strong support, but the single-peak demographic dividend means that China's future demographic decline will be more violent.
Observing China's real estate market from a demographic perspective, there are two special periods. The first period was around 1996 , when the producer/consumer ratio in China began to exceed 2, and the proportion of the production population increased, shifting from the period of population debt to the period of demographic dividend. In the 1960s and 1970s, the baby boomer population reached a period of vigorous working age and became a driving force for rapid economic growth and rising housing demand. Driven by demand and the external environment, in 1998, China began to stop the housing distribution system and establish a commercial housing market. The timing of China's real estate market reform basically coincided with the transformation of the demographic dividend.
The second time period is around 2011, when China’s demographic dividend reached its peak. The first ten years of the peak were a period of rapid rise in China’s real estate prices. After passing the high point of the demographic dividend, China’s real estate prices The rise has also fluctuated, and the economic growth rate has been adjusted and shifted.
It can be seen that China's population and housing prices have not completely deviated from the general laws. However, due to the particularity of the population-real estate relationship in China, the real estate market distribution mechanism was later than the demographic dividend rise period. Two rounds of baby boomers entered the housing demand market in the early 21st century, and the unimodal demographic dividend resulted in economic growth and housing prices. The long-term rise in the real estate industry has resulted in the peak time of real estate being later than the peak time of population.
Looking at China's real estate prices in the next 30 years from the perspective of population
There are two groups of consumers in the consumer population (non-working population): the elderly population and children. From the perspective of population economics, these are two groups of people with completely different economic meanings. Children can always grow into a working population over time. In history, after the peak of baby boom births, although the burden of support in society will increase in the short term and form a population debt, the population debt dominated by children is productive. Can be transformed into a demographic dividend in the future.
However, the elderly population is different. The elderly population cannot rejuvenate and become the labor force again. As time goes by, the human capital stock of the elderly population will be depreciated. An increase in the proportion of the elderly population will form an unproductive population debt. In this case, it is difficult for the population debt to be converted into a demographic dividend.
Compared with the historical demographic structure in the future, the most prominent change is the increase in the proportion of the elderly in the consumer population. In the next 50 years, it will be difficult for the population debt to transfer to the demographic dividend in the past 50 years. The producer-to-consumer ratio in the United States, Britain, Germany, France, Japan, South Korea and other countries will continue to fall. China’s producer/consumer ratio is expected to fall below 2 in 2030, and it is expected to fall to 2050. 1.48 means that the dependency ratio of the Chinese population will reach 67%, and 100 working population will have to raise 67 elderly or children.
For real estate, changes in the future demographic structure will have a direct consequence that prices will continue to be under pressure. In 2010, BIS analyzed the impact of population on housing prices with the help of about 40 years of population and real estate price data in 22 countries around the world. Its research shows that an increase in the elderly dependency ratio (the proportion of the elderly population in the labor force) will have a significant negative effect on real estate prices. Every 1% increase in the elderly dependency ratio will reduce the actual real estate price by 0.6%.
BIS uses this model and combines the population forecast data of the United Nations in the next 50 years to calculate the impact of future population changes on housing prices. By the middle of this century, the increase in the dependency ratio of the middle-aged population in the population structure will cause house prices in major economies to fall by about 20% to 120%, the United States by about 25%, South Korea by about 120%, and China by 95.8%. . However, due to issues such as the update of the UN population forecast data and sample sampling, the BIS estimate is significantly higher.
We re-built the model with reference to the BIS method, carried out sampling adjustment and fixed effect correction, and used the producer/consumer ratio to reflect the d change of the population structure. Our model shows that for every 1% drop in the producer-to-consumer ratio, real real estate prices will drop by 0.55%. In China, by 2030, a decline in the producer/consumer ratio will reduce real house prices by about 6.71%, and by 2050, real house prices will fall by about 20.1%. When other factors remain unchanged, this means that real housing prices will return to the level of 2016 in 2030 and to the level of 2007 in 2050.
The long-term trend of China's real estate allocation
From the perspective of life cycle, the typical individual pursues the maximization of effective use during his life cycle (Modigliani and Brumberg, 1954). Due to the mismatch between income and consumption, individuals tend to allocate assets of different types and risk characteristics at different stages of their lives, and adjust the allocation of risk assets. From a micro perspective, the housing allocation needs of the working-age population are at the highest peak in their lives. Reflected at the macro level, it means that the proportion of real estate allocation will also show a positive correlation with the demographic structure. The proportion of the labor force in society has risen. The growth rate of the population entering the housing market far exceeds the rate at which people over the age of 65 leave the housing market. The inflow of demand exceeds the outflow, which promotes the increase in the proportion of real estate allocation. Conversely, when the degree of aging increases, the proportion of the working-age population declines, and the outflow population in the real estate market is greater than the inflow population, which is reflected in the decline in the proportion of real estate allocation.
From 1960 to the present, the proportion of real estate allocation in the U.S. residential sector is generally positively correlated with the proportion of the working-age population. There are two peaks in the allocation of real estate by U.S. residents, in the 1980s and around 2007. The two rounds of allocation peaks correspond to American labor. The peak period of population proportion.
The proportion of the labor force in Japan peaked around 1992, and the allocation of real estate has declined rapidly since then. Germany and the United Kingdom have shown similar trends. There are two peaks in the proportion of the German labor force. They were around 1996 and 2010. The peaks of real estate redistribution by residents also appeared in these two periods. The rising period of the proportion of the working population in the UK basically corresponds to the rising period of real estate allocation. After 2002, the proportion of the working population in the UK has gradually stabilized, and the proportion of residents in the allocation of real estate has basically remained at about 45%.
In China's asset allocation research, there is no generally recognized data showing the proportion of residents' allocation of real estate, but there are several data for reference. The first is the urban household assets survey released by the Central Bank in October 2019, showing that housing accounts for 59.1% of total household assets. Second, data from the National Balance Sheet of the Academy of Social Sciences show that housing assets accounted for 40% of total household assets in 2019. Third, the "2018 China Urban Family Wealth and Health Report" released by China Guangfa Bank and Southwestern University of Finance and Economics shows that Chinese households' housing assets account for 77.7% of total household assets. We use data from the China Family Finance Survey Center (CHFS) here. The data shows that in 2019, the proportion of Chinese residential real estate allocation is 70.71%, and the average total assets of a typical family is 1,185,300 yuan.
From the perspective of the real estate allocation structure of foreign residents in 2019, the proportion of real estate allocation by Japanese residents is about 32%, the proportion of the United States is about 24%, Germany is 41%, and the United Kingdom is about 37%. China’s real estate allocation is obviously high. Based on the standard of reducing the proportion of real estate allocation from 70.71% to 50%, 20% of the total assets of ordinary Chinese households, about 237,000 yuan, need to be stripped from the real estate market for re-allocation. According to China's seventh census data in 2020, there are 494.16 million households in China. When summed up at the macro level, it means that the country's current assets of approximately 117.12 trillion yuan will need to be re-allocated in the next ten years, otherwise they may face assets. The possibility of ablation.
CHFS data shows that the proportion of real estate allocated by Chinese households has declined in 2019, which is 3 percentage points lower than in 2017. Population is an irreversible trend force. Over the past ten years, the allocation of heavy warehouses has enabled the buyers to obtain a huge wealth appreciation effect. The path dependence of asset allocation will lead to a lag in the adjustment of investment behavior. In theory, the withdrawal of residential funds from real estate is a slow release and adjustment process, but foreign experience shows that the adjustment of real estate allocation is often caused by the sudden release of debt risks. In the form of asset ablation, due to the rapid decline in China's demographic dividend, there is unavoidable downward pressure on China's real estate, which will affect the wealth effect of residents in the next 30 years.
What needs to be emphasized is that population is not the only power that determines real estate. The increase in per capita GDP can offset the negative effects of the shrinking labor population. Providing new sources of economic growth to drive the growth of per capita GDP and the acceleration of aging is a race of time. The winner not only determines housing prices, but also determines China's economic prospects for the next 30 years.
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