March 2012
NIRA Report

A New Model of Consumption in the Domestic Sector-Urban Consumption driven by the Elderly-

Executive Summary

The number of households residing in urban areas, and the ratio of those households toall households will increase in future. This report focuses on this trend of urbanization,and concludes that consumption in the domestic sector in urban areas1 may display agrowth trend until 2025.
The report’s main conclusions are as follows (See Chapter 1, “Toshika” to kakei shohi
no shorai (“Urbanization and the Future of Consumption in the Domestic Sector”).
z If members of the baby boom generation who migrated to and settled in Japan’surban areas during the nation’s period of high economic growth continue to live inurban areas after they reach advanced ages, there is a strong possibility that thenumber of households residing in urban areas, and the ratio of those households toall households, will increase in future. In other words, the generational effect of thebaby boom generation, which supported economic growth as urban labor power,
will now manifest itself as urbanization.
z Households residing in urban and non-urban areas display different patterns ofconsumption and modes of use of leisure time. In addition, the margin by whichhousehold budget expenditure in urban areas exceeds household budget
expenditure in non-urban areas tends to increase as the age of the members of thehouseholds increases. These factors have an effect on household expenditure forJapan as a whole which cannot be ignored.
z A simulation analysis indicates a strong possibility that the number of households
in Japan’s urban areas will continue to increase until around 2025, and household
consumption in these areas will also increase until 2025. In addition, the analysis
indicated that the increase in the number of households in Tokyo’s 23 Wards would
be greater than in other urban areas, and it is possible that, like the number ofhouseholds, the increase in consumption in the domestic sector will also be greaterin these areas than in other urban areas.
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z The results of the simulation analysis performed in this study can be interpreted asproviding an estimated lower limit for the future value of consumption expenditurein Japan’s urban areas. There is also a possibility that the predicted increasing trend
in consumption in urban areas may be maintained over a longer period due tofactors such as increasing consumption activity among the elderly residing in urban
areas and a growing preference for residing in urban areas.
Chapter 2

Theoretical Survey of Urbanization and Trends in Consumption

This chapter offers a theoretical consideration of the effects on consumption of theurbanization which will manifest itself as the members of the baby boom generationenter their senior years.
When the differences between trends in consumption in urban and non-urban areas are
explicitly considered, age-based consumption profiles at each specific point in timechange with the concentration of the population in urban areas at those times (Figure 1).
This is what the present project is attempting to quantify by reducing differences
between consumption trends between generations to differences in consumption
patterns between urban and non-urban areas.
Figure 1
Consumption

Image of urbanization and consumption
Age profile for consumption based onurbanization after baby boom generation

Consumption
inConsumption
inurban areas
urban areasbConsumption
innon-urban areas
Age profile for consumption based on
urbanization prior to baby boom eneration

Age

A study of the differences between trends in consumption in urban and non-urban areasusing actual data2 indicated the following:21) Households in urban areas tended to display a higher level of optional consumption,
on such items and activities as eating out, clothing, footwear, durable goods orservices related to education or entertainment, and hairdressing or beauty services.
2) Elderly people residing in urban areas have a greater amount of free time, andspend this time in social activities such as shopping and socializing.
Chapter 3

Estimation of Future Number of Households Residing in Urban
Areas

Focusing on trends in household numbers, this chapter considers the current status ofurbanization, following which it estimates future numbers of households in urban areas(Japan’s main cities), based on the assumption that scale of the populations of theurban areas in which the households reside remains unchanged (Figure 2).
z

The number of households residing in urban areas will reach 21.38 million in 2025,
a 5.2% increase against 2010. This is because, while the number of householdswith two or more members will decline, the number of single-member households
will increase in excess of this decline.

z

The proportion of total households represented by households in urban areas will
increase from 39.9% in 2010 to 42.3% in 2025. The percentage of households
composed of individuals aged 65 and above will increase from 36.0% in 2010 to37.9% in 2025.

z

The number of households residing in the 23 wards of Tokyo will increase from4.404 million in 2010 to 4.813 million in 2025, a 9.3% increase. The rate ofincrease is higher in the 23 wards because the rate of decline in the number ofhouseholds made up of two or more persons will be lower in the 23 wards than inurban areas as a whole.

Chapter 4

Simulation of Future Consumption Patterns – Urban Consumption
driven by the Elderly

A simulation of the effect of population aging and urbanization on the scale of theconsumer market until 2025 was conducted by focusing on differences between
consumption patterns considered by age in urban areas (Japan’s main cities) and for thecountry as a whole using aggregates based on National Survey of Family Income andExpenditure (2004) data commissioned from the Statistics Bureau. Noteworthy results
were as follows (Figure 3):3

Figure 2

Estimation of changes in number of households residing in Japan’s
main cities(Source) Estimated by author using data from Population Census (2011) (Ministry of Internal Affairs andCommunications) and Population Projection for Japan (2008) (National Institute of Population andSocial Security Research)

Figure 3

Comparison of future projections of changes in consumption for entire
country and main cities based on trends in household numbers(2010=100)(Source) Estimated by the author based on National Survey of Family Income and Expenditure (2004) (Ministryof Internal Affairs and Communications), the estimated figures in Chapter 3 of this report, andaggregates commissioned from the Statistics Bureau, Ministry of Internal Affairs and Communications.

4z

The scale of consumption in Japan’s urban areas will trend upwards until around2025. The level of consumption in urban areas in 2025 will be 2.9% higher in 2025
than in 2010, representing an increase of approximately 3.1 trillion yen against the2010 figure of approximately 111 trillion yen.

z

Considered by object of consumption, increases were observed in categories
including housing-related (approximately 1.5 trillion yen), foodstuffs(approximately 0.6 trillion yen), health and medical-related (approximately 0.3
trillion yen; based on amount paid by user), educational or entertainment-related
services (approximately 0.3 trillion yen), and other (approximately 0.4 trillion yen).
Declines were observed in categories including automotive-related (approximately
0.3 trillion yen).

z

In addition to the increase in the number of households in urban areas, theseeffects are due to (1) A higher level of consumption expenditure on the part ofsingle-person households and households of two or more persons in urban areas
than in non-urban areas; and (2) A significantly higher level of consumption
expenditure in urban areas than in non-urban areas in proportion to the degree ofaging of the population.

z

The scale of consumption will continue to increase beyond 2025 in the 23 wardsof Tokyo, and will be 5.7% higher in 2030 than in 2010, representing an increaseof 1.4 trillion yen.

Chapter 5

The Potential for Further Increases in Demand in Urban Areas andMethods for Their Promotion

The analysis up to this point has been conducted using current consumption profiles byage group, and has been based on the assumption that the scale of the populations of
the urban areas in which the households reside will remain unchanged into the future.
However, it is possible that the level of urbanization or consumption by the elderly will
increase in excess of the assumptions of the simulation3. The following trends should
be given particular consideration as factors promoting these possibilities:(1) Increased inclination to live in cities
z The results of age cohort analyses show a recent increase in the desire to move tourban areas, and there is a strong possibility that this trend will continue.
zAn increasing proportion of elderly citizens choosing housing for the elderly orold people’s homes in the city as preferred accommodation when their physical5functions decline.
(2) Increased activity among the elderlyz Due to a variety of factors, including the fact that elderly citizens are maintaining alevel of health enabling them to live unrestricted daily lives, have sufficientmonthly incomes, and are increasingly interested in social participation, there has
been a recent trend towards an increase in the number of “active seniors.”z

Data from the National Survey of Family Income and Expenditure for the past 15years shows a trend towards an increase in the ratio of expenditure on educationand entertainment and sundry expenses (including hairdressing and beauty
products, watches and jewelry), suggesting that the consumption patterns ofelderly citizens are more strongly focused on entertainment than they previously
were.

If, propelled by these trends, the number of households residing in urban areas and/orconsumption expenditure among the elderly increase to a greater extent than projected,
it is possible that consumption in urban areas will be more vigorous than suggested by
the results of the simulation discussed in this report, and that this will to a certain
extent offset the decline in the scale of consumption expenditure on a national level.
Chapter 6Conclusion

In order to further promote the trends discussed in Chapter 5, it will be necessary tofurther enhance accommodation infrastructure in urban areas, in particular for theelderly, and also to expand public transport infrastructure, facilities offering access to
education and entertainment and art/culture, and other essential elements ofinfrastructure. In addition, it is considered that if service industries targeting theindividual are concentrated in urban areas as a result of these efforts, the increased
productivity in these industries will contribute to enhancing Japan’s potential forgrowth.

Note
1. For the purposes of the analysis conducted here, “urban areas” refers to the 23 wards of Tokyo, 12
government ordinance-designated cities, and prefectural capitals. Throughout this text, the term
“Japan’s main cities” is used with the same meaning.
2. Data obtained from the National Survey of Family Income and Expenditure (2009) (Ministry ofInternal Affairs and Communications) and Survey on Time Use and Leisure Activities (2006)(Ministry of Internal Affairs and Communications) were used.
3. It is assumed that present consumption profiles by age remain unchanged, and that households willcontinue living in urban areas with populations of the same scale into the future.

6NIRA Report

A New Model of Consumption in the Domestic Sector-Urban Consumption driven by the ElderlyThe Japanese version of the full report: http://www.nira.or.jp/pdf/1104report.pdfⓒ 2012 by National Institute for Research Advancement (NIRA)

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