Savills : What are the real estate implications of a post-Covid drop in the birth rate?

Contrary to some initial predictions, the Covid-19 pandemic has not created a baby boom. Recent data on births, in-fact, show the opposite has happened in a number of countries.

In January 2021, births in Spain and France were down 20 per cent and 13 per cent respectively from the same point last year. In Italy, which felt the impact of the virus slightly earlier, births in December 2020 were 22 per cent below 2019 levels. Data for the UK is not yet available, but PwC predicts a fall of 8 per cent in 2021.

Historic trends suggest this is not unusual. People understandably hold off on big life changes during times of economic and financial uncertainty. Following the global financial crisis, births in the US, for example, fell by 3 per cent in both 2009 and 2010.

Outside Europe, similar trends have been seen in China. Here, births in 2020 stand 15 per cent below 2019 levels. In the US, birth rates in California fell by 10 per cent between December 2019 and December 2020.

This crisis, however, is unique in the sense that it has put many aspects of people's lives on hold, including marriage, which may have further deterred child birth and contributed to such a sharp fall.

Once economies recover and restrictions ease, births rates could bounce back. This depends, however, whether the pandemic and its economic impact have created a permanent change.

There also remains the longer term trend of falling fertility rates across much of the developed world. In many countries, births are already below the replacement rate of 2.1. In South Korea, which has the lowest birth rate in the world, it has now fallen to 0.84.

Countries with the lowest birth rates

The decline in birth rates, as well as improvements in health and life expectancy, has driven a growing older population across much of the world. This has implications for real estate.

There is a growing opportunity to provide housing to this group of older people who recognises their ability to live independently for longer and desire to be part of a community. Yet this type of housing remains underdeveloped in many markets. To fill the gap an understanding of cultural and regulatory factors is required.

Countries such as New Zealand and Australia are global leaders with major listed and private players who own large portfolios of retirement villages. Here, a transparent regulatory foundation for what operators and residents can expect has tipped the sector into meaningful growth.

Aging populations and lower births also creates a declining working age population. This means lower tax income going forward to support a growing cohort of retirees - at a time when public debt has surged to support economies through the pandemic.

Pension funds will need to provide retirement income to this cohort. This makes real estate increasingly attractive, providing investors with secure long-term income streams. Properties which are lower-risk and have stable income characteristics are likely to be particularly attractive to serve this purpose.

Further information

Contact Sean Hyett

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