East Asia's property obsession drives up prices and dampens desire for children
Andy Xie says high property prices are a major reason fertility rates in East Asia are dangerously low
Fertility tables tend to feature East Asian economies at the very bottom. Japan's declining population is a well-known story. Less well-known are the ethnic-Chinese enclaves' stories, like Hong Kong, Taiwan and Singapore, with even lower birth rates. South Korea is not much better.
It seems that the East Asian economies are competing to see which one dies out first.
Japan's demographic implosion is widely known. Its population has been declining for several years, and the proportion of those aged over 65 has reached a quarter of the total. Births are at a historic low, and each generation is smaller than the previous one.
Hong Kong, Taiwan, and Singapore are duplicating Japan's horror story. Because their baby boom was bigger and lasted longer, their populations are not declining despite even lower fertility rates. But it means that their ageing challenges, though coming a decade or two later, will be even greater.
This problem has been overshadowed by continued population growth in mainland China. The central government is loosening the one-child policy selectively, thereby creating the perception that the mainland still has the potential to massively increase the size of the population.
In 10 years, however, China will regret its population planning today. By then, the dominant concern will be the imminent population decline, which will happen much faster than expected, and the rapidly rising financial burden associated with ageing. If China abandons its population planning now, it will have a small positive impact on the future.
China's fertility rate has collapsed from six births per woman in the 1960s to about 1.6 now. Much of the decline came before the one-child policy. Population experts tend to assume that China's current fertility rate will last into the future, as it has been resilient for the past two decades. This assumption is likely to be very wrong.
New urban residents tend to keep their rural roots. They have had the luxury of being able to send their children back to their villages to be raised by their grandparents. Without these left-behind children, China's demographic situation would be no different from other ethnic-Chinese communities in the region.
But time will sever the rural roots of the new urban population, for the simple reason that the grandparents will die off. New urbanites' fertility preferences will then be no different from that of the old urban population. If China wants to slow the ageing process, it must do so while those grandparents remain alive.
In any country, a demographic implosion is a financial catastrophe. Japan's skyrocketing national indebtedness, for example, is driven by rising social security expenditure. At the same time, tax revenue has remained stagnant due to fewer and fewer taxpayers.
Japan's situation could be worse if not for outsourcing to China to ease pressure on its labour force. Hong Kong and Singapore have avoided Japan's fate with immigrants from mainland China. When China's population begins to decline, East Asia could become a vast financial catastrophe.
In theory, raising productivity could offset the economic effects of a declining population. The reality is that a declining population is associated with slower productivity growth. Productivity tends to come from investment. When no investment is needed for creating jobs, productivity suffers. Further, when the median age in a society is over 50, it is hard to see how it could speed up innovation.
East Asian countries need to face up to their demographic crisis now. Marginal incentives like cash for the second or third child won't do. They must ask why their fertility rates are so much lower than in the richer Western countries.
Female education and career achievement are associated with declining fertility. Chinese societies are especially strong in both. Mainland China's female labour participation rate is among the highest in the world, even higher than male participation rates in many countries. But, these factors are not the whole story.
Housing and education costs are key determinants in reproductive decisions, and East Asia is notorious for its high housing and education costs. Tokyo land prices have been falling since the peak two decades ago. But the average price per square metre is still twice as high as New York's. Hong Kong's is five times more than Tokyo's.
High property prices have led to the rise of small flats in this part of the world. When a home is just one small room, it is easy to understand why the fertility rate in Hong Kong - and, to a lesser extent, Singapore and Taipei - is so low.
Major cities in mainland China are following the same path. While the mainland is experiencing a property downturn due to overbuilding, Beijing and Shanghai have cut supplies to keep prices high. The impact on the fertility rate will be the same. Big cities are where people can find work and want to live. When they become so expensive, steep population decline is inevitable.
The obsession with high property prices is literally killing off the people in East Asia. High property price may satisfy the psychological desire for being wealthy, but it's better to be alive and poor than dead and rich.
There are many factors behind the super low birth rates in East Asia. The high living cost is probably the most important one. When governments pursue expedient policies to boost the economy by increasing living costs, they should remember that there may not be people around to support those high costs in the future.
Andy Xie is an independent economist