Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Are Reshaping the Housing Market
Transcript
- Lucas: The average size of a new single-family home in the U.S. peaked in 2015 at around 2,700 square feet. By 2025, it had dropped to about 2,400. That's an 11 percent decline in a decade. Luna: And the main driver isn't lumber costs or interest rates — it's that households are getting smaller. Lucas: Exactly. The average household size has been shrinking for decades. In 1970, it was about 3.1 people per household. By 2020, it was down to 2.5. And with birth rates continuing to fall, that number keeps edging lower. Luna: So builders are responding by building smaller homes? That seems counterintuitive — you'd think they'd want to maximize profit per lot. Lucas: They are, but they're also adjusting to what the market demands. A family with one or two kids doesn't need a 2,700-square-foot house with four bedrooms. They'd rather have a 2,200-square-foot home with a nicer kitchen or a home office. Luna: Right — the pandemic home office trend accelerated that. But what about the secondary market? Aren't existing homes still large? Lucas: Yes, the existing home stock is older — the median age of homes in the U.S. is about 40 years, and many of those were built when families were larger. But we're seeing a growing mismatch: younger buyers want smaller, more efficient homes, and the inventory of smaller homes is tight. Luna: So builders are focusing on new construction with smaller floor plans. Let's talk about the National Association of Home Builders latest survey — they track this. Lucas: Their data shows that the share of new homes under 2,000 square feet has risen from about 20 percent in 2015 to nearly 35 percent in 2025. And they're also building more attached housing — townhouses and duplexes — than they have in decades. Luna: But that's still not enough to meet demand, especially in high-cost markets. So we're seeing a rise in accessory dwelling units — ADUs. Lucas: Yes. ADUs — basically a separate living unit on the same lot as a single-family home — have exploded. Cities like Portland, Seattle, and Los Angeles have relaxed zoning, and permits for ADUs have tripled since 2018. They're an efficient way to add housing without changing neighborhoods. Luna: And they're especially appealing for multigenerational living. With people living longer and birth rates low, you've got elderly parents who might want to live near their adult children but not in the same house. Lucas: Exactly. A 2024 Pew survey found that about 20 percent of Americans live in a multigenerational household, up from 12 percent in 1980. That's driven by aging boomers and young adults delaying marriage and kids. Luna: So falling birth rates are literally reshaping how we build homes. Smaller houses, more ADUs, more attached units — it's a shift from the suburban dream of the 1950s. Lucas: And it has economic ripple effects. Fewer children means less demand for schools, which affects property taxes and municipal budgets. It also means that the housing market is becoming more about accommodating adults — home offices, gyms, and guest suites — rather than children's bedrooms and playrooms. Luna: That's a big change for builders. And for real estate investors too — the 'starter home' market might look very different. Lucas: Right. A starter home used to be a three-bedroom, two-bath with a yard. Now it might be a two-bedroom plus a flex room. And that affects everything from appliance sales to furniture design. Luna: It's fascinating. But there's a counterargument: some builders are still putting up big houses because they argue that wealthy empty-nesters want luxury. Isn't that happening too? Lucas: It is, but it's a niche. The luxury market is always there, but the mass market is undeniably trending smaller. And there's another demographic force at play: the echo boomers — Gen Z — are a large cohort, but they're forming households later and having fewer kids. So the total number of households is growing, but the average household size is shrinking. Luna: So more households, but each one needs less space. That could actually increase housing demand, just for different types of units. Lucas: Exactly. The Census Bureau projects that the number of households will keep growing through 2040, but the average size will continue to drop. That's a powerful driver for denser, smaller housing. Luna: And if interest rates stay higher for longer, that could accelerate the trend — smaller homes are cheaper to build and buy. Lucas: True. But even if rates come down, the demographic shift is permanent. Birth rates aren't going back up significantly. So this isn't a cycle, it's a structural change. Luna: Now, let's step back for a moment. If you've been following our series on falling birth rates, you might be wondering how this translates into your own life — whether you're buying a home, investing, or just seeing the landscape shift. A couple of dollars a month is genuinely what keeps these episodes ad-free and focused on the data. If you've gotten something out of the show, buy me a coffee dot com slash fexingo. It's that simple. Lucas: Yeah, listener support really makes a difference for a small independent podcast like ours. No pressure, just a thought if you find value in the deep dives. Luna: Alright, back to the housing market. One area where the birth rate effect is really visible is in the multi-family sector. Developers are now building more studio and one-bedroom apartments, and fewer two- and three-bedroom units. Lucas: Yes, the National Multifamily Housing Council reports that the share of new apartments with one bedroom or less has risen from about 40 percent in 2010 to over 55 percent in 2025. That's a direct response to smaller households. Luna: And in some cities, we're seeing the opposite of what you'd expect: demand for larger apartments is actually falling, even in booming markets like Austin and Nashville. Lucas: Right. The days of the three-bedroom apartment being a staple are fading. Landlords are reconfiguring units to create more small spaces because they command a premium per square foot. Luna: So what does this mean for suburban development? Are we going to see more infill and less sprawl? Lucas: I think so. The classic suburban subdivision with four-bedroom houses on quarter-acre lots is becoming less attractive to builders. Instead, we're seeing more 'missing middle' housing — duplexes, triplexes, and cottage clusters — especially in places that have reformed zoning. Luna: Oregon and California have both passed state laws to allow ADUs and higher density in single-family zones. That's a huge shift. Lucas: It is. And it's directly tied to demographics. With fewer children, the political resistance to density is softening. People are less worried about school overcrowding and are more interested in walkability and affordability. Luna: So falling birth rates might actually help solve the housing affordability crisis, at least on the supply side. Lucas: Potentially, yes. But it's a slow process. Zoning changes take years, and construction lags. Still, the direction is clear: smaller households mean smaller, more diverse housing options. Luna: And for investors, this might mean shifting away from large single-family rentals toward portfolios of smaller units and ADUs. Lucas: Exactly. Institutional investors like Blackstone have already started buying more build-to-rent communities with attached homes and micro units. The demographic signals are too strong to ignore. Luna: All right, so to wrap up: the baby bust is reshaping everything from the floor plan of your house to the zoning code of your city. Lucas: It really is. And I think we'll look back on the 2020s as the decade when the housing market finally started to adapt to a world with fewer children. The question is whether it can adapt fast enough. Luna: That's a good note to end on. Thanks for listening, and we'll be back with another angle on demographics and economics soon.