A new working paper explores the link between aging populations and asset prices. The paper is called “Ageing and Asset Prices” and is written by Elod Takats from the Bank for International Settlements. The author finds a significant, negative effect on asset prices as a result of aging populations, but also argues that an all out asset price meltdown is unlikely. Abstract and link to the free download are below.
Abstract:
The paper investigates how ageing will affect asset prices. A small model is used to show that economic and demographic factors drive asset, and in particular house, prices. These factors are estimated in a panel regression framework encompassing BIS real house price data from 22 advanced economies between 1970 and 2009. The estimates show that demographic factors affect real house prices significantly. Combining the results with UN population projections suggests that ageing will lower real house prices substantially over the next forty years. The headwind is around 80 basis points per annum in the United States and much stronger in Europe and Japan. Based on the analysis, global asset prices are likely to face substantial headwinds from ageing. Download full paper here.