Effects of population decline on property prices – 04/28/2023 – Claudio Bernardes

Report published in July 2020, by the UN (United Nations), predicted that the world population would reach 9.7 billion in 2050 and reach a peak of 11 billion people around 2100. However, in July 2021 , the Institute for Health Metrics and Evaluation at the University of Washington (USA) announced that the world’s population would peak at 9.73 billion in 2064 and then begin to decline to 8.7 billion in 2100.

If the results of this latest study are correct, not only has the transition to a global era of population decline been accelerated, but almost all countries are expected to experience urban shrinkage progress. Countries, whatever their degree of urbanization, must therefore prepare for the next era of population decline.

Many studies have focused on the effects of shrinking cities, particularly in countries and cities that have experienced population declines due to the hollowing out of industries.

Researchers from the University of Tokyo and the Faculty of Economics at Nihon University, in Japan, published a study on the repercussions of the population decline on property prices in the country, where the phenomenon of shrinkage in some cities is already a reality and it is possible to witness regional impacts resulting, such as the reduction or abolition of public transport services, consolidation of primary schools and an increase in the number of empty houses, with negative repercussions on public safety and the visual appeal of the neighborhoods.

In this study, a future estimate of the value of housing assets was carried out in the Tokyo metropolitan area, with 36 million inhabitants, encompassing 209 municipalities. The period of data collection and estimation was determined between 1984 (when the economic bubble started in Japan) and 2045. The future population and number of households were projected by Japan’s National Institute of Population and Social Security Research.

According to this study, the decline in population translates into a decline in the value of housing units, and in metropolitan areas the impact of the deflation of real estate assets should be more severe.

If a sprawling city shrinks due to population decline, in theory, population declines most strongly in the suburbs. Therefore, the value of housing assets in these regions will decline due to the decline in demand for housing, causing great loss for these residents.

The result of the studies shows, however, that in an area 15 km from the center of Tokyo (approximately 30 minutes of travel) the value of residential assets will continue to increase or decrease slightly until 2045. On the contrary, in distant areas, more than 30 km from the center of Tokyo (approximately 60 minutes for the commute), the value of housing decreases more intensely. Thus, the study clarified that the value of real estate assets in Japan will decrease in all municipalities, except in the central area of ​​Tokyo, until 2045. In many areas, this decrease can reach US$ 75 thousand per housing unit.

These results reinforce previous studies on shrinking cities, which show that the compactness of cities is an important antidote to urban shrinkage. However, the question that remains is to understand how to transform a sprawling metropolis into a compact city.

Therefore, if from the point of view of planning and regional policy the compact city represents an ideal urban structure in an era of declining population, the researchers understand that a practical system of economic incentives would be necessary for families to move to more central areas, such as subsidize relocation costs or exempt IPTU for those who move to these areas.

From a global perspective, it is possible to predict that the most developed countries are likely to face challenges of population decline in the next 30 years. There is still time to prepare, but advance measures are needed. For example, compact city policies must be clearly defined in long-term urban planning and, for this, not only planning but also incentive systems must be implemented while the impact of deflation of real estate assets is small.

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