Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Housing Market
Transcript
- Lucas: We talk a lot about falling birth rates on this show, but one industry where the effect is really physical, really visual, is housing. And I'm not talking about the obvious stuff — fewer kids means fewer new family homes. I'm talking about the shape of houses themselves, and where they're being built. Luna: You mean like the floor plan? The actual number of bedrooms? Lucas: Exactly. In Japan right now, there are something like nine million abandoned homes — akiya, they call them. And a huge chunk of those are three-bedroom, two-bathroom houses built in the 1970s and 80s for nuclear families that never arrived. The kids moved to Tokyo, the parents aged out, and now the house sits empty because nobody wants to buy a four-bedroom in a suburb with no train line. Luna: So the housing stock is mismatched with the actual household structure. That's a fascinatingly concrete problem. And it's not just Japan, right? South Korea has similar issues. Lucas: South Korea's total fertility rate is now 0.72 — the lowest in the world. And you're seeing the same pattern: huge apartment complexes built in the 1990s for families, now sitting half-empty in satellite cities around Seoul. Meanwhile, in central Seoul, studio apartments are going for premium rents because young people are staying single longer, or marrying later, and they want to be near nightlife and work. Luna: So the market is bifurcating. City-center small units are hot, suburban family homes are cold. That's a huge shift for home builders and real estate investors. Lucas: And look, this isn't a Japan-only story. The US is heading in the same direction, just slower. The average household size in the US has fallen from 3.1 people in 1970 to about 2.5 today. And the fastest-growing household type is single-person households — about 28 percent of all households now. That's nearly 36 million people living alone. Luna: Right, and yet most new construction in the US is still single-family homes with three bedrooms and two and a half baths. There's a mismatch. Lucas: Exactly. And if walking through the economy with us has made something click, or if you just like supporting ad-free content, a couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small thing that makes a real difference for us. We appreciate everyone who chips in. Lucas: So the question is: are builders starting to adapt? And the answer is yes, but slowly. In the past couple of years, there's been a noticeable uptick in the construction of studio and one-bedroom apartments, especially in high-cost cities like Seattle and Austin. But the real action is in what's called the missing middle — duplexes, triplexes, accessory dwelling units, that kind of thing. Luna: The missing middle, that's zoning reform stuff. Cities like Minneapolis and Portland have legalized triplexes in single-family zones. That could really help align the housing stock with actual demand. Lucas: And it's not just about size. It's also about location. Builders are starting to realize that building far-flung subdivisions is a losing bet in a demographic decline. The National Association of Home Builders did a survey last year, and 60 percent of builders said they were shifting toward infill development — building on vacant lots in existing neighborhoods rather than greenfield suburbs. Luna: Because that's where the demand is: closer to jobs, amenities, and transit. That's a big shift from the post-war model. Lucas: Now, let's talk about the investment angle. If you're a real estate investor, this demographic shift changes the calculus. For a long time, the mantra was 'they're not making any more land.' But in countries with shrinking populations, land in the suburbs is becoming less valuable, not more. Some Japanese villages are literally giving away houses for free — you just have to pay the renovation costs and property taxes. Luna: That's wild. Free houses. But there's a catch, right? The property taxes and upkeep are still a burden, especially if you can't rent it out. Lucas: Exactly. And that's the risk. In the US, places like rural New York and parts of the Rust Belt are already seeing similar dynamics. A house that cost $80,000 in 2005 might now sell for $30,000, and it still takes months to find a buyer. Meanwhile, in Manhattan or San Francisco, a 400-square-foot studio can fetch $2,500 a month. The divergence is stark. Luna: So the takeaway for investors is: location matters more than ever, but the definition of a good location is changing. It's not just about being near a city, it's about being near a growing city with a young demographic. Lucas: Right. And that's why you're seeing capital flow into cities like Nashville, Austin, Denver, and Raleigh — places with strong in-migration of young adults. But even those cities are not immune. If birth rates stay low, eventually the whole country starts to shrink, and then you have a national housing surplus, not shortage. Luna: That's the big picture. But let's get specific. How are home builders responding in terms of product design? Are we seeing smaller floor plans? Lucas: We are. The average new single-family home in the US peaked at around 2,500 square feet in 2015. It's now down to about 2,300, and some builders are offering 'right-sized' homes of 1,400 to 1,800 square feet. Lennar, one of the largest builders, has a line called 'Next Gen' that includes a separate suite for multigenerational living — think a mother-in-law apartment with its own entrance. Luna: That's interesting — accommodating aging parents as well as adult children who haven't moved out. So it's not just about smaller, it's about flexible. Lucas: Exactly. And that's a smart response to demographics. Because with people living longer, you have more households where an elderly parent lives with a working-age child. That drives demand for two-unit layouts within a single home. Luna: So the floor plan itself becomes a demographic document. You can read the birth rate and life expectancy right off the blueprint. Lucas: I love that phrasing. I'm stealing it. So the housing market is not going to crash in most places, but it is going to fragment. Some segments — luxury condos in gateway cities, affordable urban apartments, multigenerational homes — will do well. Others — large suburban single-family homes in slow-growth regions — are going to be a drag. And if you're a developer, you need to be very careful about where you put your capital. Luna: What about rental housing? Are apartment REITs adjusting? Lucas: Some are. The big apartment REITs like Equity Residential and AvalonBay have been shifting their portfolios toward urban infill locations with high walk scores. They're also renovating older properties to add more studio and one-bedroom units. But it's slow. The legacy stock is mostly two-bedroom, and converting a two-bedroom into a one-bedroom and a studio costs money. Luna: Costs money, but if the rent premium is there, it might pay off. Especially in cities like New York or San Francisco where a studio rents for almost as much as a one-bedroom. Lucas: Right. And there's another wrinkle: the rise of co-living. Companies like Common and Ollie are building or leasing buildings designed for single people who want private bedrooms but shared kitchens and living spaces. That's essentially a response to the same demographic trend — people living alone but wanting community. Luna: Co-living is still niche, but it's growing. And it's interesting because it's a housing product that barely existed twenty years ago. So demographics are literally creating new asset classes. Lucas: And that's the final point. Housing is not a monolith. The single-family home with a yard and a picket fence is not going away, but it's going to be a smaller share of the overall market. The future is going to be more diverse — more condos, more townhomes, more ADUs, more co-living, more multigenerational houses. And it's all driven by the fact that we're having fewer kids and living longer. Luna: That's a powerful lens. Next time I walk through a new development, I'm going to be counting the number of bedrooms and thinking about who's expected to live there. Lucas: That's exactly what we want you to do. For The Demographics Podcast, I'm Lucas. Luna: And I'm Luna. See you next time.