Real estate forecasts: Germany is not going to shrink
Germany is going to shrink. This assumption has been the basis of all long-term real estate market forecasts for almost as long as anyone cares to remember. For decades we have been listening to a stuck record; again and again we have been told, “Ten years from now the population of Germany will fall below 80 million.” And the forecasts have never been right. The largest uncertainty in any demographic forecast is the assumption made regarding net immigration. All of the major forecasts are based on net immigration forecasts of between 100,000 and a maximum of 200,000 per year.
And yet this is by far the least likely scenario. Over the last few weeks I have led countless discussions on this topic. The arguments that have been raised in response are: 1. at the moment, it is impossible to make any predictions about future immigration figures; and 2. everyone knows that forecasts are never right on the money.
On 1: Of course, no one knows exactly how many immigrants will make Germany their home. But does this mean that we should continue to rely on old forecasts that are based on figures of 100,000 to 200,000 new arrivals per year? And if so, why? Just because they are old? Just because we don’t dare to make any forecasts of our own? It is absurd to use patently unrealistic assumptions simply because it is difficult to arrive at alternative, more plausible assumptions. If the assumptions we have been relying on for so many years are to be correct, all immigration to Germany would have to stop for the next ten years, particularly as net immigration over the last few years has amounted to 400,000 per annum, double the much toted forecasts.
On point 2: We are not talking about 100% precision or slight variations. We are talking about whether the forecasts have got things right in general terms. And this is exactly what I have been arguing: these forecasts are way off beam. There is no way that Germany is going to shrink over the next few decades.
I do think that it is extremely unlikely that immigration will remain at current levels. If it does, there is a danger that German society will implode. You can already observe the panic that has set in. Asylum laws are being amended on the hoof and every effort is being made to undo the damage caused by Angela Merkel’s euphoric ‘open doors’ policy. The assumption that 1-1.5 million refugees are going to arrive in Germany every year for the foreseeable future is just as unrealistic as the idea that net immigration figures will sink back to between 100,000 and 200,000 anytime soon.
After all, it doesn’t look as if any of the problems that have led to the recent explosion in refugee numbers are close to being solved. It’s also highly unlikely that any of the people smugglers are about to abandon their highly lucrative criminal enterprises.
And how realistic would it be to expect other European leaders to align themselves and their countries with Angela Merkel’s “Willkommenskultur”? Does anyone really think that Great Britain, Hungary or Poland are about to open their arms to millions of immigrants? And how likely is it that the EU is either willing or able to turn Europe into a “fortress” with well-secured external borders?
It is possible that there will be restrictions placed on the number of family members allowed to join their relatives in Germany. But this doesn’t alter the fact that large numbers of family members will still come. And those that do end up staying are likely to have more children than their German peers who, as we all know, have one of the lowest fertility rates in the world.
I call on everyone who is involved in producing real estate market forecasts to develop new scenarios. Keeping faith with existing scenarios simply because it is difficult to develop new models is an entirely questionable justification.
Otherwise, we should all be honest with ourselves and suspend the use of all of our existing real estate market forecasts. But would that really solve anything? Would we know any more in six months than we do now? And how about in twelve months?
Every long-term investment decision is based on forecasts – whether explicit or implicit. What we urgently need are forecasts – for the real estate industry more than any other. After all, so many of our investments are based on long-term investment horizons.
Leading experts from a range of institutions will be joining us to discuss these topics at the Real Estate Roundtable on 10 December. I have rarely been as intrigued by an upcoming event as I am by this one. Please request your programme today by sending an email to: email@example.com.