The effect of demographic shift on property values in Japan

Purpose Demographic transition, although gradual, has a profound impact on various socio-economic aspects of society, including the real estate market. Many countries, particularly Japan, are currently experiencing rapid population aging. While the rising participation of seniors in the labour market has helped to alleviate this demographic burden in Western societies, the question is whether, in Japan, the purpose of this paper is to examine if the return of elderly individuals to the workforce could mitigate the demographic pressures on the housing sector. Besides the conventional panel model, this study used the quantile panel method to evaluate whether the effect of this demographic shift remains consistent across property value ranges. Design/methodology/approach This study considered a panel data set of 47 prefectures from 2006 to 2016 in Japan, focusing on weighted dependency ratios that account for the labour force participation rates of three elder age cohorts. This approach captures the shifting dynamics of the workforce, particularly as more Japanese retirees have re-entered the labour market in recent years. By applying the quantile panel model (Koenker, 2004), this paper explores whether the reduced demographic burden exerts varying impacts across different quantiles of property prices. Findings The conventional and two weighted dependency ratios revealed their non-linear influence on different quantiles of property values in quantile panel models. The return of elderly labourers indeed mitigated the demographic burden given the weighted dependency ratios’ weaker negative influence on the property prices at Q90, compared to the conventional dependency ratio. However, compared to the conventional dependency ratio, the stronger positive effects of weighted dependency ratios on the prices at Q10 imply that the demographic debt associated with the working involvement of these inferior elders may pressure people, especially elders, to favour and buy cheap residences. Originality/value The return of retirees to the workforce should be a good sign, given the shrinking labour force in Japan. As one of the few studies considering this demographic shift in measuring dependency ratios, this paper further evaluates its effect on different quantiles of property values in Japan. Unlike their Western counterparts, many seniors in Japan work out of financial necessity. It is found in this study that the demographic debt associated with the working involvement of inferior seniors may pressure people to favour cheap residences. These findings should give policymakers a better understanding of the housing market in this aging era.