Global Demographics & Real Estate

Transcription

1 Research Materials for Client Discussions Only Global Demographics & Real Estate Amlan Roy, PhD Senior Managing Director, Global Chief Retirement Strategist Global Property Forum Toronto, Canada (November 28, 2017) For Contact details of team members please see contacts page at the back Research materials used for SSGA Institutional Client use only and is not intended for public dissemination. CanMkt-3625

2 Demographics: A Different Perspective WHAT IT CONNECTS TO & INFLUENCES D: Discount rates, Debt E: Economic Growth, Efficiency, Structure M: Mortality O: Organisation Behaviour, Structure G: Geography, Geopolitics, Governance R: Robotics, Real Estate A: Asset Prices, Asset Allocation P: People, Pensions, Politics H: Heterogeneity, Households I: Inflation, Inequality, Institutions C: Consumers, Culture, Cities S: Sustainability WHO DOES IT PERTAIN TO? All the People in the world and their characteristics. From an economic perspective, we restrict attention to them as consumers and workers in the world. It affects all Income Statements & Balance sheets in the world for Individuals Households Corporates Nations Unless otherwise stated, all data and all data sourced to UN is the most current data attributable to the United Nations Population Division. Data shown beyond 2015 is a UN projection. 1

3 All population numbers in millions Super-old (80+) Age Group Fastest Growing World Population: 1970 versus Growth 394% 186% 129% Share of 80+ population 1970 (%) 2015 (%) UK 2 5 US Total Population Source: UN, CS, SSGA Demographics 38% 100% Germany 2 6 Japan 1 8 France 2 6 Italy 2 7 Canada 2 4 2

4 Years Years Years Years Advanced Countries Population US Population Germany Population Population (millions) Male Female Population (millions) Male Female Source: UN, SSGA Demographics UK Population Population (millions) Male Female Canada Population Population (millions) Male Female 3

5 Population aged 65+ per 100 population yrs. Years Children per woman % Change per annum Core Demographics: World, Less & More Developed Total Fertility Rate World More developed regions Old Age Dependency Ratio World More developed regions Source: UN, SSGA Demographics Less developed regions 7 11 Less developed regions Population growth annual average World More developed regions Life Expectancy at Birth Less developed regions World More developed regions Less developed regions

6 The Demographic Manifesto (2000) Radical Policy Actions to mitigate the Ageing Time Bomb Abolish Mandatory retirement ages. Adopt Flexible retirement. Close gender gaps to better utilize female work potential Rethink & implement immigration policies Outsource and off-shore non-core jobs based on costs and benefits 5

7 A Perspective on Migration: Past to Present Migration inflows by type, 2015 Thousands France Germany Italy Japan UK US Canada Work Family Humanitarian Free movements Others Total Source: OECD, CS(2015) A perspective on Migration: Past to Present, SSGA Demographics 6

8 in thousands % in thousands % Migration: US & Canada US population growth decomposed Inflow of the top 10 nationalities as % of total inflows of foreigners in Canada Natural Population Change Net Migration Canadian population growth decomposed annual average Inflow of the top 10 nationalities as % of total inflows of foreigners in US Natural Population Change Source: UN, OECD, SSGA Demographics Net Migration annual average CanMkt

9 Demographics, Savings & Capital Flows: Current Account From National Income Identity: S = I + CA + (G T) S = Private Saving, I = Investment, G = Government Expenditure, CA = X M = Net Exports, T=Taxes We find statistically strong links between demographic variables & aggregate saving, investment & current account balance We believe that the Japanese current account will steadily shrink from current levels and turn negative from 2015 Source: IMF, CS 8

10 % Gender Differences: Participation & Income Gender Labour Participation Differences France Germany Italy Japan UK US Canada 2015 FLFP 2015 MLFP Ratio of Male GNI per capita to female GNI per capita 2013 in 2011 PPP Source: ILO, SSGA Demographics 0.0 France Germany Italy Japan UK US Canada 9

11 How Increasing Longevity Affects Us All? Individuals & Families Challenge existing asset & time allocation frameworks & intergenerational dynamics Governments & Societies Asset managers, pension funds, insurance cos., banks, SWFs etc. Policy changes in labour, education, health, pensions & social benefits necessary Re-assess frameworks & assumptions. Develop new solutions for clients & new approaches to understanding longevity. Significant change in thinking and mind-set needed Source: IPE Pension Awards Speech (2013) 10

12 Demographic Components of GDP growth Working-age Population Growth working-age population = population aged Labour Productivity Growth labour productivity = real GDP/ hours worked G6 GDP growth rate has fallen dramatically ( relative to ) Main cause is declining labour productivity growth. Similar across the developed & developing world. Labour Utilisation Growth labour utilisation = hours worked/working-age population Japan Real GDP growth ( ): Contributions 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% US Real GDP growth ( ): Contributions 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% JPLPG JPLUG JPWPAG USLPG USLUG USWPAG Source: SSGA Demographics, GGDC, UN 11

13 What Affect Housing Demand & Supply? Demand Population Growth Labour Market Wages & Income, Wealth Household Structure Rural and Urban Credit Provision Stage of life-life cycle and career Supply State of the Economy Business Credit Land Complementary Infrastructure Labour & Materials supply Technology Source: CS, SSGA Demographics 12

14 Consumers: Changing Household Sizes Share by household type in percentage Share of household by size in US, 1980 versus 2016 Share of household by size in UK, 1980 versus % 80% 60% 40% 20% 0% 13% 11% 16% 13% 17% 31% 16% 33% 23% 28% % 9% 16% 13% 16% 16% 27% 31% Share of household by size in Germany, 1980 versus 2016 Share of household by size in Japan, 1980 versus % 80% 60% 40% 20% 0% 8% 15% 18% 29% 31% 3% 9% 12% 34% 42% Source: Bernstein estimates and analysis, SSGA Demographics 100% 80% 60% 40% 20% 0% 100% 80% 60% 40% 20% 0% 33% 34% % 25% 18% 17% 20% 7% 13% 18% 29% 34%

15 Age-specific housing expenditure shares US 36.0% 35.0% 34.0% 33.0% 32.0% 31.0% 30.0% Under Source: BLS, Statistics Canada, SSGA Demographics Canada 33.0% 32.0% 31.0% 30.0% 29.0% 28.0% 27.0% 26.0% 25.0% Under

16 % p.a. % Urban Population Growth (Average Annual) EMG China India Turkey Russia Mexico Brazil G6 & Canada Source: UN, SSGA Demographics Japan UK Italy France Germany Canada US 15

17 No. of urban people per rural person % p.a. G6 & Canada Urbanisation Urban Population Change (%) Japan UK Italy France Germany US Canada Urban/Rural Population Ratio Japan UK Italy France Germany US Canada Source: UN, SSGA Demographics

18 Changing global consumers Internet users Nationality, education and socio-economic groups are also major influencers of online internet use, not limited to age group Internet users among year-olds by educational attainment level, 2013 Young adults Entering the workforce and start accumulating assets later Most likely live at their parents house until years old Sharing economy Young adults living with parents year-olds High attainment Low attainment As a percentage of year-olds in each educational attainment group UK US Germany France OECD Source: OECD, ONS, US Census Bureau, CS 17

19 Sectors Demographically Advantaged Changing consumers and workers in a global and technologically advancing world. Not just people numbers, but groups and behaviours impact these sectors. INFRASTRUCTURE NATURAL RESOURCES LEISURE & LUXURY EMERGING MARKETS PHARMA & BIOTECH FINANCIAL SERVICES 18

20 Housing & Population Share (30 44 Years) % Real housing price & share of population aged 30 44, US Real housing price (residential investment deflator/gdp deflator), LHS Share of population aged 30-44, RHS Real housing price is the residential investment deflator divided by the GDP deflator Homeownership rate by age: USA Source: Bureau of Economic Analysis, US Census Bureau UN, CS 0 < 25 years

21 % % US & Canada: Home Ownership Rates by age US Under Canada Source: Statistics Canada, US Census Bureau, SSAG Demographics

22 House Prices: Advanced Countries Residential Property Prices (1995=100) Canada Germany France UK Italy Japan US Source: BIS, SSGA Demographics 21

23 House Prices in big cities House prices (2010=100) London New York Toronto Tokyo Hong Kong Source: UK Nationwide Building Society, FHFA, Japanese Ministry of Land, Hong Kong Rating & Valuation Department, Statistics Canada, Bloomberg, SSGA Demographics 22

24 Demographics and Real Estate Demographic factors determine the relative size of buyers and sellers in the housing market. Takats (BIS) finds that both real economic and demographic factors affect house prices significantly: 1% higher real GDP per capita corresponds to around 1% higher real house prices 1% higher population implies around 1% higher real house prices 1% higher dependency ratio associated with around 2/3 % lower real house prices Source: BIS Working Paper No 318, Előd Takáts 23

25 Years Number of 65+ per 100 population years % p.a. Children per women Core Demographics: EMG6 Emerging Countries Annual Population Growth Brazil Mexico Russia China Turkey India Brazil Mexico Russia China Turkey India Source: UN, SSGA Demographics Fertility Rate Brazil Mexico Russia China Turkey India Life Expectancy at Birth Old Age Dependency Ratio Brazil Mexico Russia China Turkey India

26 EMG6: Population Density, City & Share of Cities Population Density, Largest City, Share of Cities >1M Country Population share in cities > 1M Population Density (people per sq. km) Population of largest city Brazil ,066,245 China ,740,778 India ,703,168 Mexico ,998,543 Russian Federation ,165,704 Turkey ,163,989 Source: UN, SSGA Demographics 25

27 Population Density & Water/Sanitation Access % of population with access to improved sanitation facilities Rural Urban Brazil China India Mexico Russia Turkey % of population with access to improved water source Rural Urban Brazil China India Mexico Russia Turkey Source: World Bank, SSGA Demographics Population density (people per sq. km) Japan UK France Italy Germany US Canada Brazil China India Mexico Russia Turkey

28 China: Labour Mobility, Migration, Urbanisation, Consumers Hukou Reform Rural versus. urban Hukou holders differ in consumption patterns largely due to differences in (i) access to education (ii) health care (iii) housing and (iv) social benefits Issue is which of the govts bears the cost? National, city, municipal, provincial or local. People-Centred Urbanisation Type of cities Size of cities Towns and small cities <0.5 mn Number/ world total Measures Notes Full removal of hukou restrictions Only migrants with legal and stable work and accommodation Mid-sized cities mn 156/538 Gradual ease of restrictions Big cities 1 5 mn 89/428 Reasonable conditions for settlement Most dodgy government debts are in these cities migration will impose additional strains on city finance Mega-cities >5 mn 17/73 Strict control of population Most new jobs are created in these cities Source: NBS, IMF, The State Council, UN, CS 27

29 Rising Youth Unemployment Global youth unemployment rate (%) (%) Source: ILO, UN, CS 28

30 Pension Fund Asset Allocation Trends Pension Fund Asset Allocation (2001 versus 2016) Equities (%) Bonds (%) Cash (%) Other (%) Equities (%) Bonds (%) Cash (%) Other (%) Australia Canada Japan Netherlands Switzerland UK US Source: Willis Towers Watson (2017) 29

31 Conclusions Demographics is about Consumers & Workers characteristics, not just people numbers and ages. It affects macro fundamentals: growth, debt, inflation, interest rates and asset prices. Demographics affects fundamental factors that influence BOTH real estate demand and supply GDP per capita, credit, disposable income, household structure and labour markets are important influences Population density, behavioural changes, infrastructure and policy changes are changing the landscape for real estate, sustainability and climate change 30

32 Important Disclosures This is intended for Investment Professional use only. Not for Public use. Unless otherwise noted, the opinions expressed are those of the author who is a researcher at State Street. Views and opinions are subject to change at any time based on market and other conditions. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information. This document contains certain statements that may be deemed to be forward-looking statements. All statements, other than historical facts, contained within this article that address activities, events or developments that SSGA expects, believes or anticipates will or may occur in the future are forward -looking statements. These statements are based on certain assumptions and analyses made by SSGA in light of its experience and perception of historical trends, current conditions, exp ected future developments and other factors it believes are appropriate in the circumstances, many of which are detailed herein. Such statements are subject to a number of assumptions, risks, uncertainties, many of which are beyond SSGA s control. Readers are cautioned that any such statements are not guarantees of any future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The information contained herein does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account the specific requirements of any person, including his/her/its investment objectives, strategies, risk profile, tax status and investment horizon. Past performance is no guarantee of future results. Investing involves risk including the risk of loss of principal. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA s express written consent. The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers ma ke no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data. State Street Global Advisors, One Lincoln Street, Boston, MA Web: State Street Corporation All rights reserved. Tracking Number: CanMkt-3625 Expiration Date: 30 November 2017 CanMkt

33 Biography Amlan Roy, PhD Dr. Amlan Roy is the Global Chief Retirement Strategist and Senior Managing Director at SSGA since April He is an experienced Global Macro Researcher specializing in Demographics & Pensions related to Economics, Investments and Public Policy. He highlights structural issues related to gender disparity, youth unemp loyment, system risks due to policy interactions with ALM & SAA. He is a Senior Research Associate at LSE and Guest Finance Professor at LBS. Prior to joining SSGA, he was Head of Global Demographics & Pensions Research and Managing Director at Credit Suisse having j oined there in At Credit Suisse, Amlan was a client facing Researcher presenting to clients in 25+ countries and speaking at 60+ global conferences/events. In a prior role he developed global risk and asset allocation models serving as an international expert on Financial System Architecture. His big-picture macro strategic research in Global Demographics & Pensions is used by policy makers and investors and draws on the fields of Macroeconomics, Portfolio Theory, Behavioral Economics, Statistics, Derivatives and Econometrics. Prior to joining Credit Suisse, he spent over a decade in academia with a distinguished teaching career in the US and the UK. He was UK ESRC Research Fellow, Ponders Fellow, a Boston University Doctoral Scholar and a Government of India National Scholar. Amlan has a PhD and an MA in Financial Economics from the University of I owa, an MBA from Indian Institute of Management Ahmedabad and a BA Honours in Economics from St. Stephen s College, university of Delhi. 32

34 Thank You. For additional information or any questions on the information covered in today s presentation, please contact: Amlan Roy, PhD Senior Managing Director Global Chief Retirement Strategist amlan_roy@ssga.com Amy Le Global Demographics & Retirement amy_le@ssga.com 33