Deputy Governor of the Bank of Japan Highlights Demographic Trends as Key Drivers of Property Price Movements

Bank of Japan

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Date Published 2013
Primary Author Kiyohiko G. Nishimura
Other Authors
Theme Real Estate Cycles and Bubbles
Country Japan


Property market bubbles have long been recognized as an important risk to economic stability. Although not all property bubbles lead to financial crises, there are malign bubbles that do indeed trigger significant financial stresses and cause economic crises, such as the US housing bubble of the 2000s. In this presentation, I argue that demographic trends are one of the key drivers of the property price movements we have observed over the past few decades. In particular, I argue that a growing young population increases the likelihood of a property bubble. The increased demand for property from a growing young population is likely to induce the institutional change of a loosening of financial laws and regulations that pushes up prices further, thereby fueling a malign price bubble. (These institutional factors will be discussed in greater detail by my fellow panelists Frank Warnock and Tim Riddiough.) In contrast, the negative effects of the bursting of a price bubble are all the more pronounced where there is an ageing population. Macroprudential or institutional policies therefore become important in responding to a malign property bubble. (This will be the subject of the presentation by Ken Kuttner.) However, I believe that the issue is not limited to questions of the technical effectiveness of various macroprudential policies, but highlights the very fact of the “procyclicality” of institutional changes in laws and regulations induced by demographic change. From this discussion I will draw three policy implications: firstly, the need, to recognize the significant effects of demographic trends, secondly, to avoid too loose a policy in the demographic bonus phase, and thirdly, to avoid too strict a policy in the demographic onus phase. In the final part of this presentation, I will discuss property price indexes, and outline an attempt to obtain relevant price information in a timely manner. Timely and accurate data on property prices is of utmost importance in responding to a property bubble, especially in emerging markets. (Yongheng Deng will discuss this issue in the context of China.)

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