Immigration could be one of the main factors keeping the growth of our housing market steady here in the USA instead of declining as in other parts of the world.
According to Mike Orr a housing analyst with the Cromford® Report, “the higher than average fertility of first-generation immigrants (of all nationalities and races)” could be a crucial factor in keeping our housing market in the USA healthy over the next decade or 2.
Population growth is one of the main drivers of demand for housing. This appears painfully obvious, but what happens if and when the population stops growing? We can see the effects by studying the housing market in Japan. Population decline is a very serious problem in Japan, due to low birth rates and feeble immigration.
More than 8 million homes are already empty across Japan because there are too few people to need shelter and younger generations have shifted to a more urban environment. Economists project that number may reach 21.5 million unwanted homes by 2033. In this kind of situation, millions of the least attractive homes quickly become worthless. This problem is compounded by a tax system that allows people to depreciate their homes to zero in 20 years, causing homes to be built for a short usable life. These homes become worthless for several reasons.
In Japan only 15% of homes sales go through the secondary market. Some older homes just sit there and decay. Some can be converted into cheap rentals. Others quickly become uninhabitable. In Arizona about 10-12% of homes sales are new and the remaining 88%-90% go through the secondary market. We are fortunate to have had a constant inflow of new inhabitants (except for 2009) which sustains a good level of demand.
The population of Japan was 127,650,000 as of March 2012, making it the world’s tenth most populous nation at the time. It has since been overtaken by Mexico and it is believed that the population has been in decline since 2008. The Japanese National Institute of Population and Social Security Research expects the population to decline every year over the near term, reaching 86 million in 2060. This will occur despite Japan having one of the best medical systems in the world which achieves a life expectancy of over 83 years (compared to 78.74 for the USA). The current life expectancy in Arizona is 79.6 years, a little higher than the US average. Interestingly, the life expectancy of a an Asian American in Arizona is a little higher than average at 80.8 years.
All these people living longer does not help population growth because they are past the family-creation stage in life. The number one economic challenge that Japan faces is a shortage of births. Fewer babies are born than the number of people that die each year. Over the past 5 years only 8.4 children were born per 1,000 Japanese inhabitants. Until recently this was the lowest birth rate among any major country. However, Japan has now been outdone by Germany which saw only 8.2 children born per 1,000 inhabitants over the past 5 years.
Germany has a not so secret weapon to try to keep its economy afloat in the coming decades – young immigrants of child-bearing age. These days it is common to hear immigration discussed as if it were an economic problem. There are undoubtedly some negative aspects of immigration. But to an economist, rather than a politician, strong immigration flow is a very helpful factor in growing the economy of the receiving country and avoiding deflation. This is true even when those immigrants are impoverished and desperate refugees from war and political conflicts.
Alarmingly low birth rates have now spread from Japan to much of the developed world. They would be lower in the USA if it were not for the higher than average fertility of first-generation immigrants (of all nationalities and races). From the perspective of a housing analyst, maintaining a strong net flow of new immigrants and especially their babies, could very well be the crucial factor in keeping the market for housing healthy over the next decade or two.
–The Cromford Report
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