© The Herald
Originally published: 17.06.2006

A WARNING that property prices in Scotland will stagnate because the country is running short of young people, has been given by a leading expert on population change.

Professor Robert Wright also said Scots should not bank on using their homes to provide a retirement nest-egg.

The expert based at Strathclyde University warns that Scotland's demographic problems mean there will not be sufficient people at the bottom end of the market looking for starter-flats. He told a seminar yesterday that the problem will become clear towards the end of this decade.

Compared with England and Wales, Scotland faces a triple problem: falling population, declining numbers of young people and slower income growth. England's income and population growth should keep property prices buoyant, and this could leave a growth rate gap of between 7-per cent and 9-per cent per year between the Scottish and English markets, according to complex statistics modelling.

"Future trends in demographics lead to implications for house prices, and demographics in Scotland are going to put downward pressure on house prices in Scotland relative to England, " he said.

"If people aren't coming on to the bottom of the property ladder, those who are already on it don't move up. And the number of younger adults is going to plummet."

As a sign of what could be coming for Scottish property owners, Mr Wright points to East Germany where young people have left, creating more houses than demand, leaving homes that are cheaper than currently available in Scotland. His warning also concerns rising property prices for those looking to retire to the sun.

"If you have GBP300,000 equity in your home, don't be sure you'll have it in retirement.

"This is bad news if you think you're going to be living in Spain in your old age."

However, he said the slowing growth rate in house prices could have a good effect for Scotland, making it an attractive place for migrants to settle, and helping to turn around the declining population.

His findings counter recent research commissioned by the mortgage lenders' association that suggests house prices should continue to rise over the next four decades.

But it has been an area of contention between house price experts, with a prominent American study in the late 1980s forecasting the baby boom years would lead to "baby bust" as numbers of young people fall. They reckoned real house prices in the US would fall 47-per cent between 1987 and 2007, whereas they have risen by more than 27-per cent.

Mr Wright is careful not to make such forecasts, except on the differential with England.

His figures reflect long-term trends that see the Scottish working age population aged between 20 and 65 falling by one sixth from three million last year to 2.5 million in 2035.

The steep decline is set to start from 2010, though that does not take account of the last two years of population statistics suggesting there may be the early signs of the trend being turned around as a result of migration into Scotland from England, Poland and elsewhere.

As Scotland's leading academic expert in demographics, who has been researching the issue for the executive, Mr Wright argues there has been over-emphasis on keeping the total population above the five million mark, when the more important issue is ensuring that a balance can be found between the young of working age and the elderly.