Demographics: How are population dynamics affecting real estate in Île-de-France?

According to Hippolyte d’Albis, a professor at the École d’économie de Paris and research director at CNRS (French National Center for Scientific Research) population dynamics in France explain, in part, the country’s solid real estate market health.

In certain European counties, like Germany and Italy, birth rate decreases have contributed to the realignment of housing supply and demand.  In France, birth rates have fallen from 2 to 1.88 births/woman since 2015, according to INSEE, the French National Institute of Statistics and Economic Studies.  What consequences will the real estate market face if this evolution continues?

It’s true that birth rates have decreased in France, but it’s rather the changes in the number of households that have more of an impact on the real estate market.  Thus, due to life expectancy increases as well as the separation of households, for example after a divorce or for professional relocation, housing demand has not decreased.  Population changes are measured by the rate of natural increase, or the difference between the number of births and the number of deaths, which, despite everything, remains positive in France.

We must thus take a closer look at the effect of death rates.  With baby boomers reaching old age, the rate of natural increase could indeed drastically reduce.  The number of deaths, which jumped from 551,000 to 602,000 between 2010 and 2017, could still increase in the years to come.  This will bring about an increase in housing supply, regardless of any trends in the real estate market.  This depressive effect on the market is compounded by the aging of the general population, which signifies more sellers and less buyers.

Is there a link between demographic trends and real estate price changes?

Economic studies have shown that in certain neighborhoods in Paris, the presence of foreign buyers drives up real estate prices, but this effect is very small throughout the entire conglomeration of Paris and negligible if we take into account the whole region.  It is therefore difficult to conclude that a certain demographic will drive prices up.

On the other hand, researchers have identified the link between demographic changes and real estate investment, or the construction of new housing.  If Île-de-France is being built up, mostly as part of Grand Paris, it’s because the regional population in particular is increasing.  Demographic changes have thus had a positive effect of housing supply, the increase of which has minimized its potential effect on prices.

What can other countries teach us?

In Japan, population decreases are directly correlated  with real estate prices, which have plummeted.  In certain cities in former Eastern Germany, like Rostock, for example, prices are very low as part of the population left after the reunification of the country.  These examples show that population demographics do indeed have an impact on the real estate market, although it is difficult to generalize as the situation in each city is unique.

Prices are only a reflection of the current real estate market in those markets where sales actually take place.  In several small communes in France, for example, this is not the case.  Despite these specific situations, France shouldn’t follow in the footsteps of Japan because although population increases in France have slowed, they still remain positive.  The only thing that we can say with certainty, is that population dynamics are a strong indicator in the real estate market.

Source: « Le dynamisme démographique, un facteur très favorable au marché immobilier »