Risks that Will Definitely Occur in the Future, Viewed by the Generation

People are influenced throughout their lives by the “generation” they were born into. For example, today’s elderly were born after World War II and worked during the period of rapid economic growth, enjoying relatively ample pensions. However, younger generations today, as seen in Norihiro Furuichi’s “The Happy Youths of a Despairing Country”, have plenty of things to enjoy, but with low disposable incomes, they are in a disadvantaged economic situation.

Therefore, understanding which generation one belongs to, and clearly distinguishing between “risks that may happen” and “things that seem likely but probably won’t happen” during the rest of one’s life, can lead to more effective asset formation. It’s important to focus on real estate when considering this.

After World War II ended, peace arrived in developed countries. Soon after the war, a large number of children were born. This was the global baby boom, and in Japan, it became known as the “baby boomer generation.”

In 1950, Japan’s average life expectancy was 59.57 years for men and 62.97 years for women. At the age of retirement today, many people passed away, and the population structure was one with only working adults and children. The proportion of take-home pay was higher in an era when taxes and social insurance premiums were lower, and the economy could sustain high growth because of a large proportion of the working population. It is well known that such rapid economic growth, like Japan’s, can happen in any country with effective economic policies. This is referred to as the “demographic bonus.”

Specifically, the working-age population refers to people aged 15 to 64, while the dependent population is made up of those 14 and under and 65 and older. When the proportion of the working-age population increases, the economy is boosted.

With abundant, inexpensive labor and a small tax and social security burden, it was easier to allocate the national budget to economic policies. Economic growth did not result simply from hard work; rather, because the burden on the working generation was small and more money was spent on consumption, high growth was facilitated through a positive economic cycle.

The opposite of the demographic bonus is the “demographic onus.” This refers to a population structure with a low proportion of working-age individuals and a high proportion of elderly people, indicating an aging society with a shrinking birth rate. Japan is in this state today, which makes economic growth difficult.

However, the systems designed during the “demographic bonus” era, when there were fewer elderly people, tended to favor the working generations, who were the primary voters. Moreover, since it was difficult to foresee the coming of a declining birthrate, intergenerational disparities began to widen. Intergenerational disparity refers to the differences in benefits and burdens arising from the year of birth. Benefits come in the form of public services like pensions, healthcare, and nursing care, while burdens are the amounts paid to the government in taxes and insurance premiums. According to Japan’s Economic and Fiscal White Paper, the gap in benefits and burdens between the current elderly and younger generations is estimated to exceed 100 million yen.

Japan’s public pension system operates on a “pay-as-you-go” basis, rather than a “funding” system. In the funding system, the contributions you make are invested and then paid back to you in retirement. In contrast, in the pay-as-you-go system, the premiums paid by the working generation are used to fund the pensions of the elderly. As a result, some generations clearly benefit while others lose out. Despite the fact that the demographic structure could change, the system was designed to favor voters over 20, so no one raises complaints about it.

Many voters are elderly beneficiaries of vested interests, and institutional reforms aren’t making progress.

Marriage and childbirth have also undergone dramatic changes. As society has shifted from arranged marriages, which were somewhat forced, to more freedom in romantic relationships, trends such as delayed marriage and a declining birth rate have advanced. The total fertility rate exceeding 2, which is necessary to maintain a stable population, is now rare among developed countries.

Regarding the declining birth rate, no country has found an effective solution amidst increasing freedom of life choices and expanding generational disparities. Ultimately, a declining birth rate leads to a reduction in the total population, which could result in the extinction of a nation. This is a phenomenon that applies on a global scale to humanity as a whole, just as the extinction of dinosaurs occurred. According to UN population projections, under low birth rate estimates, humanity could shrink to fewer than 100 million people on Earth within 400 years.

To prevent this, institutional reforms should be implemented, but the aging population, who are largely beneficiaries of vested interests, constitutes a large portion of the electorate, making it difficult for reforms to progress. Even if it is understood that the current generation, which only cares about its own well-being, is passing on debts to future generations of children and grandchildren, they are unlikely to take self-restraint actions.

The Real Estate Market Leaving Young People Behind
What is the “Home Strategy” to Avoid Losing?

From these observations, many things about the real estate market become clear.

First, asset prices continue to rise. The price of condominiums, for example, has doubled over the past ten years, and there’s no sign of it decreasing. The disadvantage of this is that younger generations are unable to buy homes. Homeownership rates increase with age, meaning that, in every era, those who own homes are older, and those who don’t are younger.

This is precisely why asset inflation is accepted by the public. With the homeownership rate among people aged 85 and older at 85.2% (according to the census), the system is designed to favor homeowners. In a democracy, the majority is always favored. Just as pension payments cannot be reduced, the depreciation of assets is also not allowed.

Real estate can serve as a means to convert assets into cash through reverse mortgages. A reverse mortgage allows one to borrow money using property as collateral, with an interest rate of around 3%. Additionally, if assets are increasing, the government will receive more inheritance tax, which doesn’t lead to criticism but merely increases financial resources. This is why a significant crash in real estate prices is unlikely. The bursting of the bubble was a response to the rapid price surge, and it remains an exceptional case.

On the other hand, rents are rising. In Japan, policies have always favored homeownership, and there’s almost no support for renters. Even if rents rise and people can’t afford to buy homes, political support for families with children remains a low priority. This is why such issues are left unaddressed.

Given this situation, the “home strategy” becomes clear. The best option is to move quickly from renting to owning a home. From an asset perspective, purchasing a condominium is far more advantageous than buying a house. In a time when it’s hard to envision a price drop, there’s no benefit in delaying the purchase.

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