We have written before on the important impact of demographics on real estate and economy on a whole.
When talking to real estate developers in Belgium, it surprises me each time that they fail to acknowledge that price appreciation of Belgian real estate from 1980 until the financial crisis occured parallel with the entry of boomers into the labour force. In countries like Belgium an massive amount of women entered the work market and all people obtained higher educational levels than their parents. The quantity and quality of labour increased, total consumption rose and so did aggregated savings. These savings took in countries like Belgium the form of real estate investments and prices rose.
Those times are over in Belgium.
The trend of an increasing amount of woman entering the labor market stopped (saturation reached), educational levels are no longer going up (top has been reached), productivity is decreasing in Belgium and so are the aggregated savings. This has nothing to do with the crisis, it is a long term Trend that started in 2004 and it’s fundaments are the demographics and the massive immigration of people with extremely low added-value to the Belgian economy.
Which brings is to what is called demographic dividend; the major drivers of real estate growth.
Demographic dividend happens when (1) falling fertility lowers child dependency and (2) when the working age population (15-64) expends but (3) before the old age dependency starts to rise significantly.
Belgian lost it’s demographic dividend completely; on the contrary, the country is going into an area of demographic deficit; not only because of the above 3 drivers, but also because of the destructive immigration policies of Belgium.
Demographic dividend goes hand in hand with rising investment and accelerating growth; the Western world enjoyed demographic dividend for the last 30 years; but now the party is over, the benefit is exhausted; no new workers are entering the job market and a massive amount of long-living baby-boomers are retiring, aggregated savings are falling. In the Western world the new morale is “walk away from your mortgage, buy an iPad”
People who believe that in Western Europe the real estate prices will recover after the financial crisis are wrong; they forget the impact of the above described much stronger negative driver. The number of 20-44 year olds, who are the ones buying real estate and first-time homes will fall by 20% in the next two decades, even up to 30% in Belgium and Spain and … China (yes, China: the 1-child policy will have a very ugly impact on China soon), and even decrease a massive 40% in South Korea.
Brazil has a very healthy fat belly of new entrants in the labour market for the coming 20 years, their time to enjoy the stimulans of demograhic dividend.
George Magnus wrote an insightful book on the theme in 2008, called “The Age of Aging“, next October his new book “Uprising: will the emerging markets Shape or Shake the world economy” will be published.
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