Demographic change: Sustainable solutions a matter of intergenerational fairness

The Federal Statistical Office has presented a new population forecast. While underlying conditions have improved somewhat in recent years as a result of the immigration of young people and rising birth rates, the basic problem of an ageing society remains. According to a middle variant of the 14th coordinated population projection, the population of Germany is expected to fall by around 5 million to 78.2 million people by 2060. Compared with today’s almost 34 of the retirement population for every 100 of the working age population, the ratio will have reached around 53 for every 100 by 2060. The age structure transformation will experience its greatest boost in around ten years’ time when the baby boom generation enters retirement.

The ageing population poses enormous challenges for labour markets and social security systems. Examples are a shortage of skilled workers, a falling statutory pension level and an exacerbating nursing care crisis. The dwindling population is also likely to accelerate the migration from rural areas to cities that can already be observed today. There is therefore little prospect of relief for housing and real estate markets. On the contrary, the division is likely to intensify: while rural areas face the prospect of vacant housing and dying villages, urban housing will remain scarce and expensive.

Yet the challenges outlined here are not new. The consequences of demographic change were already a subject of discussion after the sudden drop in birth rates following the introduction of the conctraceptive pill. And policymakers have indeed responded over time with a number of measures. Examples are the introduction of the nursing care insurance, the Riester Pension (government-subsidized pension products), a higher statutory retirement age, improved childcare and the law on the immigration of skilled workers recently passed by the Bundestag. Nevertheless, the reforms carried out so far do not go far enough. Many citizens can see gaps emerging in their pension provision that they will be unable to close before entering retirement. The care facilities are already overburdened today. It remains to be seen whether the proposed law to improve nursing wages can succeed in making the nursing profession more attractive. On the other hand, it is already clear that nothing will be achieved through the “rent brake” or the Berlin “rent freeze” as solutions for stimulating housing construction.

What is really needed are substantial long-term reforms, such as plans to scrap the “priority review” contained in the law on the immigration of skilled workers. This would eliminate the need to check the availability of a European candidate before recruiting a skilled worker from a third country. One courageous step towards reforming the pension provision system would be to realize the citizens‘ fund recently proposed by the ifo Institute. This would involve the state raising debt at low interest rates and broadly investing the funds in equities and real estate in order to generate respectable returns. The surplus thus accrued over the decades could then be used as additional fully-funded pension provision for younger and succeeding age groups.

Genuine relief for urban housing and real estate markets can only be achieved if new construction is geared to demand. The focus should therefore be on simplifying building regulations, providing new building sites, using existing vacant plots for housing construction and lowering the property transfer tax. Finding sustainable solutions to meet the demographic challenges is a matter of intergenerational fairness. Economically viable concepts are needed that are not at the expense of future generations.

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