Housing Demand from Population Growth

  • The most boring economic statistical trend is U.S. population. It grows by one percent each year, a gain of about 2 to 3 million. The trend arises from about 4 million live births and about 2 million deaths in the U.S. each year. Legal immigration makes up the remainder.
  • More people should mean more housing demand. But that is not always the case. What really matters is household formation. One household can be one person living in a city apartment. One household can also mean a family of six living in a suburban home. Population growth therefore can be accompanied at times by no growth in households if a young adult moves-in with a parent(s). Currently, there are a record number of such cases. Such crowded living arrangements do not create housing demand.
  • Bad news: Historically, there had been about 1.2 to 1.4 million net new household formations each year in the U.S. The figure is typically low during an economic downturn and then bounces higher as better times return. What is most perplexing today is that the household formation has been running at half the normal rate for not one or two years but for seven straight years.
  • Good news: It seems near impossible for household formation to remain crunched as it has been in the upcoming years. Household formations are therefore bound to pop-out. That in turn will create demand for both rental and ownership housing. Home sales and housing starts will therefore mostly rise in the upcoming years.
  • Conversely, as common sense would have it, countries or regions experiencing population declines will have less need for new home construction and should expect far fewer home sales. Germany, Italy, Japan, and Russia are current examples. People in these countries are choosing to have fewer babies and hence the housing industry should not expect rolling times.
  • Not from choice, but terrible events can lead to major depopulation. Europe, on August 4th, took pause to remember the horrific war that occurred 100 years ago. At the start, soldiers mobilized across Europe with an enthusiastic spirit as if going to a football match. Then the reality of dirty trench warfare took hold. 16 million died during the war. After the war ended, another tragedy struck. The Spanish Flu spanned the globe and took even more lives: 20 to 40 million. Though inconsequential to the above matter, records show virtually no new houses being built for about twenty years in France.

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Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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