In this paper, we empirically investigate how real estate prices are affected by aging. We run regional panel regressions for Japan and the United States. Our regression results show that both in Japan and the U.S., real estate prices in a region are inversely correlated with the old age dependency ratio, i.e. the ratio of population aged 65+ to population aged 20-64, in that region, and positively correlated with the total number of population in that region. The demographic factor had a more significant impact on real estate prices in Japan than in the U.S. Based on the regression result for Japan and the population forecast made by a government agency, we estimate the demographic impact on Japanese real estate prices over the next 30 years. We find that it will be -2.4 percent per year in 2012-2040 while it was -3.7 percent per year in 1976-2010, suggesting that aging will continue to have downward pressure on land prices over the next 30 years, although the demographic impact will be slightly smaller than it was in 1976-2010 as the old age dependency ratio will not increase as much as it did before.

Aging in Japan is advancing faster than in other major developed nations, and this is expected to have substantial effects on the country’s economic systems, including its social security system.1What kind of effect will the falling birthrate, aging society, and declining population have on the real estate market? Will the often mentioned real estate price down really occur? This paper addresses these questions by investigating how demographic factors affected real estate prices in Japan and the U.S. To do so, we construct regional panel data covering over a quarter-century in Japan and the U.S. and then conduct regional panel data regressions to estimate the impact of demographic changes on real estate prices.