decline in future decades. This will lead to a smaller total value of housing assets. This can occur through a decline in new construction, depreciation of the existing stock of housing, and/or a drop in the price of existing houses. The drop in house prices is a signal to builders to reduce the flow of new construction. Land prices are also likely to decline, since land, unlike residential structures, does not depreciate. The effects in the United States are likely to be more modest, because the U.S. population is projected to continue to grow through the next century. The effects on house and land prices are also likely to vary substantially across regions and even metropolitan areas.


Population aging in the United States, as well as global population aging more generally, is likely to have only a modest effect on rates of return. There is substantial uncertainty about the magnitude of this effect, as well as about the channels that will prove to generate the strongest effects. Some asset classes may be affected more than others. For example, owner-occupied housing in areas with rapidly aging populations may experience a decline in values, while land in the central business district of cities with rapid population inflows may rise in value. Cross-border capital flows and immigration could influence the ultimate effects. Moreover, there are close links between policies discussed elsewhere in this report, notably fiscal policy, and the long-run effect of population aging on rates of return.

There are important links between the financial markets in different nations, so the committee’s focus for studying population aging and rates of return is on an integrated global economy. In considering how U.S. population aging may affect the rates of return available to U.S. investors, therefore, it is important to examine a number of features in the global economy such as the prospective growth rate of currently emerging economies and the degree to which immigrant labor can move from savings-poor to savings-rich nations. Given the uncertainties in the many forces that could strengthen or attenuate the effect of population aging on rates of return, the committee concludes that it is reasonable to assume that such an effect will be modest. It recognizes that financial markets in recent years have become more volatile, and its conclusion in part reflects the view that future volatility is likely to be dominated by nondemographic factors. If volatility remains high, this could affect the asset allocation choices of older households. It is important to recognize, however, that there are scenarios in which rate-of-return effects could be substantial and in which they would have significant effects on the retirement income of the future elderly population. Volatile financial markets may increasingly challenge older households with the need to make sound financial decisions.

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