FAQ: Will Declining/Slowing Population Bring Down Home Prices?
By Devin Lavelle
A frequent question in California is: If the state’s population is declining, why are housing prices so high? Or will the housing shortage resolve itself? Or who is buying all these homes? Or other questions following the same logic. The market is, theoretically, driven by the balance of supply and demand and, presumably, declining demand should have just as much impact as increasing supply to ease our housing crisis. Unfortunately, the reality is that demand is not declining. So why is that?
Population Decline
Numerous headlines have trumpeted the decline of California’s population. Since reaching a peak of 39.5 million in early 2020, the state has lost about 600,000 over the ensuing three years, according to Department of Finance estimates. Following several years of slowing growth, this trend could have significant impact on California’s economic and fiscal future, but does it impact housing costs in the short term? Probably not much, because …
Slowing Immigration
Immigration rates declined nationally during the COVID-19 pandemic. California was no exception. The number of California residents who were living abroad in the prior year averaged nearly 300,000 from 2001 to 2017 (and was higher toward the end of that period) according to American Community Survey Data (note that this data does not align perfectly to Department of Finance Data because American Community Survey measurements are estimated as of July 1 of a given year, while Finance is estimated as of January 1).
As a result, across 2020 and 2021, approximately 180,000 fewer migrants moved to California. This would account for about 40% of the decline in this period.
Note that in the most recent data, these figures have reverted to relatively normal levels and modestly exceeded prior averages.
Declining Birth Rates
Birth rates have been in decline broadly, including both international birth rates and domestic birth rates. This has held true in California as well. From 2001 to 2017, California averaged about 520,000 births per year, according to California Department of Public Health data. From 2020-2022, California missed that number by just over 100,000 each year, or about half of the overall decline. As a result, the number of households with children has declined consistently as well, from 4.1 million in 2010 to 3.8 million in 2022, according to American Community Survey data.
This trend does not appear likely to reverse in the coming years, according to Department of Finance Projections.
Result in Smaller Households
So the question remains, why does affirming these decreases answer the question posed about housing? The components of change matter, because different people have different tendencies to impact households. Newborn children, of course, must live in multi-person households, and tend to continue to do so many years into the future. Immigrants also tend to live in larger households, according to Center for Immigration Studies analysis of Census data.
Household size in California had been increasing, from 2.87 in 2000 to 2.94 in 2010 and 2.98 in 2017 before dropping to 2.82 in 2022 due to these and other factors, according to American Community Survey data. While this may seem like a small fraction, if California in 2017 had the same number of people with the smaller households today, it would have required about 750,000 additional homes.
Households Have Increased, Despite Population Declines
The end result is that, despite the small decline in population, the number of households has actually continued to increase unabated. There were approximately 600,000 more households in 2023 than there were in 2017, according to Department of Finance estimates, despite the decline in population over this period.
Which is to say, no, small declines in total population will likely have little impact on overall housing demand, and thus, overall housing prices, so long as those declines are driven by decreased birth rates and decreased international migration (although changing family dynamics may impact the type of housing families prefer).
We hope this provides helpful context and invite California policymakers and their staff to seek more in-depth answers on the questions raised, or to find inspiration for new applications for this data that will support the Governor and the Legislature in developing better public policy for the people of California.