What kind of private houses have great value in future?
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The ongoing global economic crises started from the real estate crises. During the last year too much real estate was developed in many countries all over the world. That real estate has dropped sharply in its value by now. During the real estate boom many houses were built on purpose for earning a short-term profit as the real estate prices increased rapidly. Now the situation has changed and the question is what will be the value of real estate in the future. Although it is difficult to predict future real estate prices, some general trends which will have an impact on the real estate prices in somewhat longer perspective (5-10 year), can be outlines. Next I will present the most important developments, which will affect the demand and prices of residential property during the next decade.
Our time will become more and more valuable. First, it is caused by the fact that our earnings increase in the long-run and it means that we can earn more and more money with our time. Second, as the income increases, individuals have more possibilities for leisure activities, which is require time for doing that. It is not likely that people will be happy to spend their valuable leisure moments on household tasks. Therefore people will prefer more and more that kind of housing, which does not require too much time for housekeeping activities. The heating system is also important. If the it is not based on an automated solution, which requires active human participation in the heating process, for example, oven heating, then it will not match the life style of a time valuing person.
The location of the real estate is also related the increasing value of time. If your home is far from your job, schools, kindergartens, shopping centres, sporting facilities etc., then a reasonable amount of time is spent on commuting. The more people value their time, the less they are willing to waste time on travelling from one place to another. So it can be argued, that the location of real estate will become even more essential in the future. As people are travelling more and more to foreign countries both for work and leisure, then the international connections of the location are becoming important. How far is it from the airports, how many direct flights departures from the nearest airport? How good is the railway connection with foreign countries?
Holiday in foreign countries will become more affordable and popular. Our jobs will also become more time and location flexible and it is possible that short time stays in foreign countries will become regular for many of us. For example a web designer or accountant can live for a month or two to a warm and sunny place like Hawaii or Thailand during the winter months and he can do this work over the distance using information and telecommunication technology.. This leads to a fact that people will spend in their homes less time. This can create two trends. First, using their homes less means that people are willing to pay less money for that, which can lead to a change in preferences toward cheaper housing. As at the same time the location of the property will become more important, it could lead to increased demand for small apartments in good location. Secondly, it people stay away from home for longer periods, it makes profitable for them to rent out their home when they are away. So if the house or apartment well suited for renting it could increase its value.
Family relationships will become more unstable and they will have shorter duration. The new generation will value more freedom and variety. The starting age of long-term cohabitation will increase, the greater share of young people will attend foreign universities, work in foreign countries and the youth will travel more to foreign countries. If the present economic crises will become too long, then it could decrease the birth rate. If the number of kids in families is smaller then the demand for large houses will be lower.
Among demographical processes the aging of the population will have also an impact on real estate demand. If the share of elderly population increases, then their preferences will affect the real estate more and more. What kind of real estate is demanded by old-aged people? Usually they need less living space than the younger ones, well functioning public transport system and peaceful environment have great importance for them. They do not care so much about the modern design, so they are reluctant to live in older houses, especially if it is cheaper.
Besides aging population and low birth rates the European countries have a problem of high and continuously increasing labour costs, which create a demand for using cheaper foreign labour. The cross-boarder labour mobility will increase in the future. As labour mobility means more changes of residence, then it will foster the development of rental real estate market as more and more people will benefit more from renting instead of buying real estate.
In conclusion, it can be argued that in the future there will be increased demand for more flexible real estate solutions, which correspond well to continuously changing lifestyles and preferences. People will change their homes more than before during their lifetime. Therefore real estate, which can be easily sold or rented, will gain more value in the future.
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My name is Kristjan-Olari Leping. I am a speed reading trainer. I have an associated professor position at the University of Tartu, am a policy analyst in a policy research center, I am a trainer and I am involved in many other business projects. 