Low birthrate and property market busts

August 25, 2012
Singapore Democrats

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Toh Beng Chye

Peter Drucker wrote in his book
Peter Drucker On The Profession of Management that “Demography is the future that has already happened”. Knowing the population dynamics of Japan’s population, he says, will allow one to predict that the demand for adult diapers will exceed those of baby diapers and businesses should prepare accordingly. This development has been reported by

Every financial bubble (stock market, property, credit, etc) has a set of fundamentals behind that drive the initial boom. During the dotcom bubble, there were many new business models which were highly innovative and exciting and promised great returns. There were trailblazers like Amazon.com which revolutionized book selling,
Yahoo! which took away advertising revenues from print media, etc.

Unfortunately, irrational exuberance led to a great bubble in the stock market, which drive the Nasdaq up to 5132 in January 2000 but subsequently crashed to 1108 in October 2002.

Similarly, there are fundamental drivers in the property market which often lead to boom and bust. It is intuitive that the greatest demand from housing come from the group of individuals between the age of 30 to 50.

Individuals in their 30’s are starting their family and aspire to buy a house or looking to upgrade to a bigger house to accommodate their growing families. Individuals in their 40s are usually at the peak of their earning power and will look to upgrade to bigger and more luxurious housing or investing in additional residential property.

Thus when these groups of individuals reach a peak in a country, they will kick start a boom in the property market. As the boom continues, investors and speculators will jump in and when things reach a fevered pitch, a bubble is formed.

Demand for housing will fall when the these groups of individuals age and their earning power reduces with retirement. A crash can be expected unless the population reproduces sufficiently to provide continued demand for housing.

Japan provides us with an excellent model to study from. The figures below are two population trends in Japan in 1990 (left chart) and 2010 (right chart). It clearly illustrates the dynamics as Japan’s population peak age group was in the 40’s in 1990 and increased to 60’s in 2010.

Simply comparing housing boom-bust cycles with demographic trends can be problematic as there are many other factors that contribute to the housing-market problems, eg. excessively loose monetary policies, immigration policies, lack of restrictions and curbs on property speculations, etc.

Nevertheless, these are important tell-tale signs which policy policymakers cannot ignore. The chart on the left shows the play-out of the boom and bust of Japan’s property from 1980 to 2005 which corresponds with its population trends.

Presently, China has a very similar population dynamic to 1990’s Japan. The figures below are striking. This has prompted the Bank of Japan to warn China about her housing bubble. (See

One cannot but agree with the Bank of Japan that present trends in China could result in very bad consequences for the housing market. The Japanese should know because they suffered from these mistakes for the past two decades.

It is debatable, however, whether the policymakers of China is willing or able to do anything about developments in their housing market.

Singapore’s population dynamics is also very similar to 1990’s Japan (see figure below). We will face a similar cycle in our property market unless our policymakers are willing to take unpopular measures to curb excessive speculation. We can also take steps to bolster the number in the 0-10 age group through increasing childbirth, etc.

Increasing the number of individuals in their 30s and 40’s through immigration will increase the size of this age group and add to the demand for housing in the present (further adding to the boom) but does not prevent the subsequent crash.

Unfortunately, the Government has tried for many years to persuade our younger generation to have more children without much success.

I suspect one big reason for many couples not having children or delaying forming their families may be that young people are finding housing to be increasingly unaffordable.

If so, controlling excessive property speculation may be one key to our low birthrate problem. (This is why the SDP is presently working on an alternative housing policy for Singapore.)

Dr Toh Beng Chye is a medical doctor and is a member of SDP’s Healthcare Advisory Panel.