housing demand. 

The literature review found an absence of consensus on whether individual housing demand increases or decreases on average with age beyond 40 years. Against the view that  demographics could make real estate prices collapse, other studies systematically conclude either that demographics will have no effect or, instead, that any price decrease would be temporary and of little importance, or yet again that the effect of demographics will be counterbalanced by an increase in real income.  Only two studies examined the impact of demographics using Canadian historical data. Both conclude that the demographic effect

formulate a set of 6 housing price and housing stock outlooks for the 1998-2016 period. 

 

The resulting conclusions are that real housing prices are not likely to decrease in Canada over the coming years.  The main factor that determines the long-term change in the real housing price is the real income of the adult population. Of the various possible demographic measurements, only the growth in the population aged 25-54 has a statistically significant impact on the real housing price. Based on the results of the econometric modeling, the passage of the baby-boom generation raised the real price by 25% between 1965 and 1975, the level at which it stayed until 1989. It then decreased 20% between 1989 and 1997 when a smaller generation followed.  The demographic impact was therefore considerable. However, the economic fluctuations, and in particular the 1980-82 recession and the economic decline of the 1990s had an even greater influence.  The greatest part of the downward demographic pressures occurred during the 1990s.  What remains to be absorbed will occur mostly between 2002 and 2005 when the growth of the population aged 25-54 will slow more rapidly. However, the upward trend resulting from the projected increase in real income is expected to dominate the demographic impact, especially after 2005.  If a correction is made to prices for the probable quality/size bias, the contention of some real price decrease becomes plausible in the scenario with weak economic growth and low fertility and low levels of immigration. Even under such a scenario, the decrease would be small. Overall, the authors conclude that it is more plausible that there will be a modest rise in prices.  The provincial model structure was similar to that of the Canadian model. However, certain important coefficients vary from one province to another.  The effect of real income on housing prices appeared greater in Ontario and particularly weak in the Atlantic Provinces. Manitoba exhibited a very slow but statistically significant reaction of price to income.  The contention of declining prices becomes conceivable only in the provinces that experience population shrinkage in key demographic age groups in the course of the next 20 years. Prices were projected to decline in the Atlantic provinces and Saskatchewan, because the population aged 25-54 is expected to decline earlier than in the other provinces and more sharply. However, by 2016, the model forecasts moderate decreases of about 10% as compared with current prices. In all of the other provinces, a real price which is higher than at present is projected.  The price growth will be especially large in the provinces with greater demographic growth: Ontario, Alberta and British Columbia. Ontario, which will experience more sustained demographic growth than the other provinces, should benefit from the strongest price increase.  The study concludes that even if it is true that demographics may exert downward pressure on real estate prices, such impact will probably be dominant only in certain regions, depending on their rates of growth in real income. In the other regions, the real price should have a tendency to rise.

 

1. See Boom, Bust & Echo: How to Profit from the Coming Demographic Shift and Boom, Bust & Echo 2000: Profiting from the Demographic Shift in the New Millennium , both by David K. Foot in collaboration with Daniel Stoffman.