Conor Sen

US Housing Crisis Only Gets Worse as Population Shrinks

News that the US population barely grew this year, together with ever-falling birthrates and the decline in immigration, raises the possibility that the nation will be shrinking in the not-so-distant future. So fewer people should make housing more affordable for those looking for it, right? Well, don't get your hopes up.

People tend not to want to live in shrinking places, and if the US population starts to decline, it might lead to even less housing demand in stagnant metro areas, and an even worse housing affordability crisis in the smaller number of places that continue to attract new residents.

To start with, a country without any population growth doesn't need to have a growing housing construction industry. That will lead to consolidation among homebuilders and the building materials supply chain. If you can't grow profits via greater sales volumes, you try to do it via reduced competition and cost cuts. And that means tightly controlled housing production — the exact kind of behavior we've been seeing from the publicly traded homebuilders as they've grown their market share over the past decade. All else equal, that will tend to keep housing supply in check and make housing more expensive.

When it comes to housing, it might be better to think about the US as a country of 384 metro areas (plus 50 million Americans who don't live in places big enough to qualify as a metro area) rather than one continuous country. In 2021, the US population grew just 0.1% — the lowest annual expansion rate since our nation's founding. But housing dynamics are best viewed through the different metro areas that are growing and shrinking. Of the 384 metro areas, 72 had declining populations in the decade leading to 2020, according to the Census.

By population size, the largest of those shrinking metros are Akron, Ohio, Syracuse, New York, and Toledo, Ohio. A quick search on Zillow shows that there are lots of houses for sale in Toledo for under $200,000, which is great news for people looking to buy homes in Toledo, but the bigger impact might be that people won't want to move to Toledo if they interpret a declining population as a sign of fading prospects for the region.

There are another 39 metro areas that grew between 0% and 2% in the 2010s — imagine that those places actually start to lose population in the 2020s due to a continued decline in birthrates and immigration. At that point, you're talking about much bigger metro areas — eight of those have more than one million people including Chicago, St. Louis, Pittsburgh and Cleveland. Perhaps favored neighborhoods in those metros will remain desirable — the Loop in Chicago and waterfront communities in other places — but the overall negative momentum could result in more people wanting to leave and fewer people looking to move in.

And that will put pressure on the remaining areas that are fast-growing. Only about 67 million Americans live in metros that grew at least 15% in the 2010's — places like Austin, Texas, Raleigh, North Carolina, and Boise, Idaho. While there's room for further growth in all of them, we've seen affordability issues pop up over the past year, and it's unclear just how quickly infrastructure and homes can be built to keep pace with demand. Existing residents increasingly tend to look unfavorably on the influx, which they blame for rising congestion, inflation and culture change.

The housing dynamic is similar to the concept of "climate refugees" — the idea that the impact of wildfires, hurricanes and floods will force people to flee from dry and hot places in the West and coasts in the southeast to more resilient parts of the country. The parallel with population growth might be something like "demographic refugees," with Americans looking to leave the ever-expanding number of places with falling populations to move to the smaller number of places that are still growing, providing better job opportunities and the hope for a more prosperous future.

So while there will be plenty of affordable homes in Toledo and Akron, that won't help solve America's housing woes if it just means the demand in Austin and Boise — or wherever people really want to live — grows and grows.