The Process of Urbanization and Deurbanization - Essay Example

Bachelor Thesis To obtain the academic degree Bachelor of Science Demographic Development and its Influence on Real E Markets The Co2 balance has taken a positive turn in the inner cities, and it has been proven that the amount of living space per head is smaller and that exhaust emissions due to traffic pollution have been reduced (Gardner, 1991, pg. 63). It is expected that in the coming years there will be an annual fall in land use. This can only be brought about though if more compact housing structures are built. Re-densification in urban areas would be the inevitable consequence (Borsch-Supan, 2002, pg. 92). If no additional building land were to be designated and instead more residential areas in the inner cities were to be developed, this could also bring about a decrease in the price difference for living space between the inner city and the outlying communities. Without an energetic desire to correct building land shortages on the edge of towns, re-urbanisation will probably only happen very gradually (Jacobsen,2005, pg. 92). It is of course plausible that a large number of older people will move back to the cities. Simultaneously however, there will continue to be older people who leave the cities to live in coastal areas or who move to be with family members on the edge of cities. The balance, even if there were to be a structural improvement in the cities, would probably be minimal. Far more likely is the fact that re-urbanisation will happen as the result of a relative improvement in the inner cities accompanied by a simultaneous relative weakening of the outlying areas to reduce the use of space. By implementing new and optimized traffic concepts in inner cities, this would safeguard tax revenue (Kabisch, 2008, pg. 82). Re-urbanisation does not happen because of senior citizens who return to the inner cities, but rather because there will be more suitable housing options for young people in the cities, and they will not even have to consider leaving. If this generation remains in the cities, there could be a remanent effect which could lead to a gradual process of re-urbanisation. There are probably two other dynamics that prevent a dramatic re-urbanisation. First, the weaker the demand in the outlying communities, the more housing prices drop. This development could gather speed in the next 20 years when the former home buyers and house builders die out in the country areas. Then the demand for housing in the country will decline faster than the natural disposal of housing stock can balance out (Sanderson, 2006,g. 21). This leads to housing vacancies, thus putting a downward pressure on prices. This, in turn, will attract low-income households. The other aspect is that the re-urbanisation process demands forward-looking and co-operative politicians, who follow a co-ordinated housing strategy that will be focused on making community revenue more independent of the number of inhabitants living in that community . Only then would there be no more incentive for intensive use of the instrument ´cheap building land`. Even if many elderly people prefer to stay in their apartment and in the familiar environment they are accustomed to, those same elderly people have to ask themselves if that real estate location and environment actually fulfils those needs. The demand for barrier-free apartments to accommodate people with limited mobility will follow in the wake of the development of the society. By 2050, the number of people over the age of 65 will increase by about 110,000 people, based on an average household of about 1.4 persons per household, which translates to over 80,000 households per year (Rudinger, 1999, pg. 9). The number of people over 80 is also increasing and in this age-group the need for nursing care lies significantly higher than among those people between 65 and 80 years of age. Added to this is the fact that this situation gives rise to frequent physical limitations which do not perhaps require nursing care, but which lead to tremendous difficulties in older buildings without a lift or a stair lift. Even if one assumes that not every senior citizen requires a barrier-free apartment, this comparison shows that within the framework of current project completions, the demand for barrier-free apartments in Germany cannot be met by new buildings, but rather primarily by building modifications (Sinus, 2010, pg. 75). This would suit the needs of the large majority of most elderly people, as it would allow them to remain as long as possible in their apartment. There is, of course, also a potential for barrier-free apartments in new buildings, since many devices can simplify the life of the aged without having to first suffer impairments. It therefore makes sense to conceptualize barrier-free apartments from the beginning, or at least to permit an efficient modification . This naturally means meeting legal specifications, but these will not be discussed here further as they exceed the scope of this work paper. This section explained the structure of the future property demand, where the sinus-milieus were of importance as well as the age-appropriate apartments. The next section deals with house prices in Germany, which introduces the “Asset Meltdown” hypothesis and explains the recent trend of housing prices in Germany. 1.1 House Prices in Germany After analyzing the structure of the future demand of properties, this part is going to explain the house prices in Germany starting with an introduction into the “asset meltdown” hypothesis and define the relationship of the hypothesis to house prices in Germany followed by recent trends of housing prices in Germany. Housing prices have a significant impact on the financial stability, real economic activity and current and potential future development in the real estate and property industry (Mamolo, 2011, pg. 71) Providing reliable information which will increase the level of understanding relating to the impact of demographic changes on housing, and in turn on the level of pricing, is of fundamental importance to the real estate and property industry (Rudinger, 1999, pg. 40). In segment 3.2, the theory maintained by Gregory Mankiw and David Weil was mentioned. The nexus between demographic change and the development of housing prices is often interpreted through the so-called “asset-meltdown hypothesis attributed to Mankiw and Weil”. In 1988, both these economists had predicted a price decrease in real house prices by almost 50% for the USA. The transition from baby boom to baby bust caused erosion in the price of US real estate by almost 50% within 20 years (Mankiw & Weil , 1989, pg. 71). They formulated a housing demand function for a household, which depends exclusively on the age structure of the members of the household with an average use of living space per age-group. The total demand of the household by living area is calculated by adding the individual and age-related demand of the individual members of the household. It showed a strong increase in living space demand particularly in the age-group between 20 and 30 years old. In addition, the parameter values drop significantly after the age of 40. In light of the declining demographic development following the baby boomer generation, both economists recognised overinvestments in the housing market in the year 1989, which was still before the development of the most recently burst real estate bubble. They therefore forecasted a sudden and sharp decrease in real estate prices for the subsequent years after 1989, which actually turned out, in the end, to be a miscalculation (Mamolo, 2011, pg. 49). Between 1987 and 2007, the real price of housing should have dropped by almost 50% if it were to maintain the balance predicted by Mankiw and Weil in their calculations. “Even if the fall in housing prices is only one-half what our equation predicts, it will likely be one of the major economic events of the next two decades.” (Mankiw & Weil , 1989, p. 248). This quote makes it very clear that both the economists were far off from their estimated results. The housing prices did indeed move in the opposite direction, but instead of falling by 50%, the real housing prices in the USA increased between 1987 and 2007 by 70%. After all, US property prices actually stabilised in 2012 (Meulen, 2011,pg. 75). The performances in the first chapter of this thesis could lead one to fear that the prices for German real estate would be put under even more pressure, since the challenges as a result of the demographic development will have a greater impact than those in the USA. Nevertheless, in the following chapter it was argued that jumping to conclusions about the influence of population figures on housing prices are invalid, as the demand for housing, the availability and hence the price structure do not depend simply on the number of inhabitants. References Bodie, Kane, & Marcus. (2008). Investments (7th Edition ed.). McGraw Hill. Federal Statistical Office. Germanys Population by 2060 :Results of the 12th ` coordinated population projection. 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