Quartz yesterday published an interesting article on the “great baby boomer sell-off” in the US, which it argues will kick-off later this decade and potentially cause the next housing crisis:
In the 20 years between 1990 and 2010, these consumers were at their peak family size and peak income. And suddenly, there was massive demand in America from the same kinds of people for the same kinds of housing: big, large-lot single-family homes (often in suburbia). In those two decades, calculates researcher Arthur C. Nelson, 77 percent of demand for new housing construction in America was driven by this trend…
In the coming years, baby boomers will be moving on (inching further through the python, if you will). “They will want to sell their homes, and they’re hoping there are people behind them to buy their homes,” says Nelson, director of the Metropolitan Research Center at the University of Utah… Nelson calls what’s coming the “great senior sell-off.” It’ll start sometime later this decade (Nelson is defining baby boomers as those people born between 1946 and 1964). And he predicts that it could cause our next real housing crisis.
The quartz article follows data provided earlier in the week by Doug Short, illustrating the ageing conundrum facing the US:
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The year 2013 is an inflection point in the chart above, with the elderly cohort dramatically increasing in numbers. The ratio of the two, the blue line in the chart, peaked in 2007 and began its long rollover in 2008, coincident with the beginning of the last recession. We have many years to go before this ratio approximately levels out around 2030.
Even more disturbing is the elderly dependency ratio, the label given by demographers to the ratio of the 65 and older population to the productive workforce, which for developed economies is usually identified as ages 20-64. The next chart illustrates the elderly dependency ratio with Census Bureau forecasts to 2050. Note that in this chart I’ve followed the general practice in demographic research of multiplying the percent by 100 (e.g., the mid-year 2013 elderly dependency ratio is 23.3% x 100 = 23.3).
As the chart painfully illustrates, the elderly dependency ratio is in the early stages of a relentless rise that doesn’t begin to level out until around 2036, over two decades from now.
On the request of regular MB commenter, Explorer, I have re-created the above charts for Australia using the Australian Bureau of Statistics high growth (births / immigration) population projections (see next charts).
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As you can see, Australia shares many of the same demographic challenges of the US, which would suggest that our economy and housing market should (other things equal) come under similar demographic pressures.
Indeed, last December, Citigroup released the below series of charts showing the relationship between dependency ratios and house prices in a range of countries:
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Citigroup’s Matt King explained the chart as follows:
“It’s what I like to call “the most depressing slide I’ve ever created.” In almost every country you look at, the peak in real estate prices has coincided – give or take literally a couple of years – with the peak in the inverse dependency ratio (the proportion of population of working age relative to old and young).
In the past, we all levered up, bought a big house, enjoyed capital gains tax-free, lived in the thing, and then, when the kids grew up and left home, we sold it to someone in our children’s generation. Unfortunately, that doesn’t work so well when there start to be more pensioners than workers.”
For more analysis of this issue, check out the following articles:
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
