Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Housing Market
Transcript
- Lucas: So you look at the housing market and everyone talks about interest rates, inventory, zoning. But there's a slower, deeper force reshaping what gets built and where. And it's the same demographic trend we keep coming back to on this show. Luna: Falling birth rates. Lucas: Falling birth rates. It's not just about fewer babies. It's about what that does to household formation, home size preferences, and ultimately the entire stock of housing a country needs. And the effects are already showing up in the data in some pretty concrete ways. Luna: Give me one concrete example that jumped out at you. Lucas: Sure. Look at Japan. The country's population peaked in 2008, and since then they've lost about three million people. And for years, the assumption was that housing demand would just shrink proportionally. But that's not what happened. Instead, the number of households kept rising even as the population fell. Luna: That seems counterintuitive. How can you have more households but fewer people? Lucas: Because household size is shrinking. In Japan, the average household size dropped from about 3.1 people in 1980 to around 2.2 now. So even with a declining total population, you need more housing units because people are living alone or in smaller groups. That's the demographic math that builders are grappling with. Luna: And this isn't just a Japan story. We're seeing similar patterns in parts of Europe, South Korea, even some US metro areas. Lucas: Exactly. In the US, the average household size has fallen from 3.0 in 1960 to about 2.5 today. And it's projected to keep dropping as birth rates stay low. What that means is, even if population growth slows to a crawl, you still need new housing units. But the kind of units you need changes. Luna: Right, because a family of four wants a three-bedroom house with a yard. A single person in their thirties might want a one-bedroom apartment downtown or a small condo. Lucas: Precisely. And that shift is already remaking the homebuilding industry. In the US, the share of new single-family homes with four or more bedrooms peaked around 2006 and has been declining since. Meanwhile, construction of studio and one-bedroom apartments has surged. In 2023, about 40% of new multifamily units were studios or one-bedrooms, up from about 30% a decade earlier. Luna: So builders are responding. But it's not just about unit size. It's also about location. The classic suburban model — big houses on big lots, good schools, family-oriented amenities — that whole pitch starts to wobble when there are fewer families with kids. Lucas: That's a huge point. And you can see it in the declining premium for homes in top-rated school districts. Historically, parents would pay a massive markup to get into a good school zone. But as the share of households with school-age children falls — it's now below 30% in the US — that premium is starting to erode. Some school districts in the Northeast and Midwest are actually seeing enrollment drops of 20 to 30 percent over the past decade. Luna: Which then affects property tax bases, local budgets, and eventually home values. It's a compounding cycle. Lucas: And it's not uniform. Some suburbs are retooling themselves. They're adding more multifamily zoning, more walkable amenities, trying to attract childless households and empty nesters. But others are stuck with a housing stock that was built for a demographic that's shrinking. Luna: I want to talk about the empty nester piece, because that's a big demographic force on its own. People over 60 are increasingly choosing to age in place, but they're also downsizing. And that frees up larger family homes — if they actually move. Lucas: And many aren't moving. That's the lock-in effect. Older homeowners with low mortgage rates and no desire to deal with moving trucks are staying put. That reduces the supply of existing homes for young families, which is one reason starter homes are so scarce. But when they do downsize, they often want the same kind of unit that single young professionals want: smaller, more accessible, often in a denser setting. Luna: So you have two different age groups — young singles and older downsizers — both competing for the same type of housing. That's a recipe for price pressure on small units, and potential softness in large single-family homes in outer suburbs. Lucas: Exactly. We're already seeing that in some markets. In the Phoenix metro, for example, the fastest-selling properties in 2025 were townhomes under 1,500 square feet. Meanwhile, large single-family homes in master-planned communities took 20% longer to sell compared to pre-pandemic averages. Luna: And internationally, South Korea is probably the most extreme case. They have the lowest total fertility rate in the world — around 0.72 children per woman as of last year. Their population is projected to halve by the end of the century. So what does that do to their housing market? Lucas: It's fascinating and a bit alarming. In Seoul, apartment prices have actually remained high because people are clustering in urban centers. But in rural areas and smaller cities, you see abandoned homes and even entire villages depopulating. The government has been demolishing thousands of vacant homes in some provinces. And there's a growing debate about whether to allow conversion of residential land back to agricultural use. Luna: That feels like a very long-term shift. But in the nearer term, what's the biggest opportunity or challenge for the housing industry from falling birth rates? Lucas: I think the biggest challenge is adapting the existing housing stock. Most countries have a mismatch: too many large, outdated homes in areas where young people don't want to live, and not enough small, modern units in job-rich areas. Retrofitting and rebuilding is expensive and slow. The opportunity is for builders who can deliver smaller, more efficient units — think micro-apartments, accessory dwelling units, and co-living spaces — at a price point that works. Luna: And there's also the financing side. Mortgages are still largely designed for a 30-year fixed on a single-family home. The market for loans on small multifamily or co-living properties is underdeveloped. Lucas: That's a great point. The whole infrastructure of home finance — from appraisals to underwriting to securitization — is built around the detached single-family home. As demand shifts, that infrastructure will have to evolve. We're already seeing some FHA and Fannie Mae pilot programs for small multifamily loans, but it's slow. Luna: So let's talk about one more angle: the impact on local government budgets. If fewer families means fewer school-aged children, and if home values in certain areas stagnate, property tax revenues could shrink. Lucas: Right, and this is already happening in places like upstate New York and rural Illinois. School districts are consolidating. And without the growth in property tax base, municipalities have to either cut services or raise rates on remaining homeowners. That can accelerate out-migration, making the demographic problem worse. It's a vicious cycle. Luna: I guess the silver lining is that falling birth rates also mean less pressure to build on greenfields and more opportunity to densify existing urban areas. That could be better for the environment. Lucas: Potentially. But it requires political will to upzone neighborhoods that are currently restricted to single-family zoning. And that's a battle in many communities. Still, the demographic trends are so powerful that over time, the market will force adaptation. Builders, lenders, and local governments that read the signs early will be better positioned. Luna: It's one of those topics where the numbers are really stark, but the human stories are just as important. I'm thinking of a friend who's a real estate agent in Cleveland. She says the hardest homes to sell are the four-bedroom colonials built in the 1950s in neighborhoods that are losing young families. She's had clients drop prices by 20% and still no takers. Lucas: That's exactly the kind of granular signal that aggregates into a big shift. And it's why we keep coming back to demographics on this show — because it gives you a lens to see the future that most people miss. Luna: Speaking of which, if walking through the economy with us has made something click for you, and you'd like to help keep this show ad-free and independent, you can support us at buy me a coffee dot com slash fexingo. It's a simple way to say this kind of deep-dive journalism matters to you. Lucas: Yeah, we really appreciate that. It keeps us free to follow the data wherever it leads, without worrying about sponsors. Every bit helps. Luna: And on that note, I want to end with a question for our listeners. As birth rates continue to fall, what kind of housing do you think your own community will need in twenty years? It's worth thinking about. Lucas: It's a question that affects everything from your property value to your local school's budget. We'll be watching how builders and policymakers respond. Thanks for listening.