Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Home Building Industry
Transcript
- Lucas: I've been looking at new home floor plans recently, and something jumped out — the four-bedroom, two-story colonial that dominated suburban America for decades is becoming less common. Luna: Builders are responding to smaller households, right? I saw that the average household size in the U.S. has dropped from about 3.1 people in 1970 to around 2.5 now. Lucas: Exactly. And that's not just because people are having fewer kids — it's also more single-person households, more empty-nesters, more multigenerational arrangements. So the one-size-fits-all four-bedroom model doesn't match demand anymore. Luna: What's replacing it? Lucas: A few things. First, builders like Lennar have introduced what they call 'Next Gen' homes — essentially a house within a house, with a separate entrance, kitchenette, and bedroom suite. It's designed for adult children living with parents or aging parents moving in with their kids. That's a direct response to multigenerational living becoming more common. Luna: Right, because with fewer kids per family, there's more space for extended family under one roof, but you still want privacy. Lucas: Exactly. PulteGroup, another major builder, has been pivoting toward townhomes and duplexes in their 'Centex' brand, targeting first-time buyers and empty-nesters who want less square footage. Their average home size has actually shrunk by about 10 percent over the past five years. Luna: That's counterintuitive because everyone talks about McMansions getting bigger. But those are luxury builds. The mass-market builder is going smaller. Lucas: Exactly. The National Association of Home Builders reports that the median single-family home size peaked in 2015 at around 2,500 square feet and has been trending down since. Now it's closer to 2,300. And it's not just about square footage — it's about layout. More homes are being built with flex rooms that can serve as a home office, a bedroom, or a rental unit. Luna: Which circles back to the declining birth rate. Fewer kids means you don't need dedicated bedrooms for each child. You need a room that can convert to a home office or a guest room. Lucas: And that's changing the economics for builders. When you build smaller homes, you can fit more units per acre, which is critical in land-constrained markets. Some builders are now doing 'missing middle' housing — duplexes, triplexes, cottage clusters — which were illegal in many suburbs until recent zoning reforms. Luna: So the demographic shift is literally reshaping the built environment. I want to talk about one specific product that's booming: accessory dwelling units, or ADUs. Those are the backyard cottages or garage apartments. Lucas: ADUs are a perfect example. In California, ADU permits went from about 1,300 in 2016 to over 23,000 in 2024. That's a seventeen-fold increase. And it's driven by exactly this demographic shift — parents want a separate space for their adult kids to live in, or they want a rental unit for extra income in retirement. Luna: If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Lucas: It really does. And it means we can keep digging into numbers like this without any sponsors nudging the conversation. Luna: So back to ADUs — they're not just a California fad. Portland, Oregon; Minneapolis; and many cities on the East Coast have relaxed ADU regulations. And the national home builders are starting to take notice. Lennar actually launched an adu specific division in 2023. Lucas: That's a big deal. A publicly traded home builder moving into the ADU market signals that this is more than a niche trend. They see demand from homeowners who want to add a rental unit, or from buyers who want a property with an existing ADU. Luna: What about the impact on home prices? If builders are shifting to smaller, more efficient floor plans, does that make homes more affordable? Lucas: It should, in theory. Smaller homes cost less to build per unit. But the land and development costs don't shrink proportionally. So you end up with a smaller home that costs only slightly less than a larger one — the price per square foot goes up. That's one reason we're seeing a boom in townhomes and condos, which share land costs across multiple units. Luna: So the American dream of a detached single-family home on a quarter-acre lot is becoming less attainable, and the demographic trends are accelerating that shift. Lucas: Exactly. And it's not just about affordability — it's about what people actually want. Surveys show that millennials, who are now the largest homebuying cohort, prefer walkable neighborhoods, smaller yards, and homes that require less maintenance. That aligns perfectly with the smaller households and lower birth rates. Luna: There's also a boom in active adult communities — 55-plus housing. Builders like Pulte's 'Del Webb' division are expanding rapidly. Those communities cater to empty-nesters who want single-level homes, often with two bedrooms, not four. Lucas: And that's a direct play on the aging population. The 65-plus demographic is growing faster than any other age group. So builders are following the demographics. They're building for older couples, not for young families with three kids. Luna: What about rental housing? Does the shift from homeownership to renting tie into birth rates? Lucas: It does. When you have fewer children, you're less likely to prioritize buying a home with a yard in the suburbs. You might rent a two-bedroom apartment in the city. And that's exactly what we're seeing — multifamily construction has outpaced single-family for most of the past decade. Luna: But that's also a function of high home prices and interest rates. Hard to separate demographic effects from cyclical ones. Lucas: True, but the demographic shift is structural. Even if interest rates fall, the underlying household composition has changed. The average household size isn't going back to 3.1 anytime soon. So the demand for three- and four-bedroom homes is permanently lower than it was in 1970. Luna: One data point I came across: the share of new homes with four or more bedrooms peaked at 54 percent in 2007 and has fallen to about 44 percent today. That's a huge swing. Lucas: And that's exactly the kind of shift that ripples through the entire economy. Fewer bedrooms means less demand for furniture, appliances, carpeting, paint — every industry that supplies home interiors. It's another angle on falling birth rates hitting consumer goods. Luna: There's also the investment angle. Homebuilder stocks — like Lennar, Pulte, D.R. Horton — they're all adapting to this trend. Investors who understand the demographic shifts can identify which builders are positioned best. Lucas: And it's not just builders. Companies like Sherwin-Williams or Home Depot need to anticipate that new construction is trending toward smaller units. Even the home security industry — fewer kids means fewer baby monitors, but more ADUs mean more separate entry systems. Luna: So the lesson is: if you're investing in housing-related stocks, you need to think about who's actually moving into these homes. Lucas: Absolutely. Builders that are slow to adapt — still churning out four-bedroom colonials in exurbs — are going to have trouble selling. The ones that are building smaller, more flexible, multigenerational-friendly homes are the ones that will thrive. Luna: I think that's the key takeaway. Demographics aren't just about population numbers — they're about household structure. And that structure is changing faster than many people realize. Lucas: And it's going to keep changing. The Census Bureau projects that by 2030, one in five Americans will be over 65. That's a lot of empty-nesters looking to downsize. The home building industry is going to look very different in ten years. Luna: And that's what we'll be watching. For The Demographics Podcast, I'm Luna. Lucas: And I'm Lucas. Thanks for listening.