This Demographic Blip Could Trigger Demand Upheaval
While most experts fixate on supply-side disrupters and impediments in housing, population demographics could have a demand-side, not-so-nice surprise in store.
With a solid decade ahead of Millennial adult working households evolving – even gaining – momentum as our most powerful economic engine, few doubt market-rate housing's foreseeable structural demand.
One data-point, 268,000, or so, could make more than a few doubters if it turns out to be anything but a radical anomaly in a sea of reversion-to-norm sameness.
Here's why that number, 268K, means more than most people give it credit for right now.
If only in the spirit of a "man plans, God laughs" challenge, we – because we're us – will ask the question:
"What could disrupt demand?"
Maybe an odd question, for sure. Most analysis, research, and strategic firepower preoccupies itself these days instead with the other side of the supply-and-demand economic equation.
Supply-side constraint--people to build, lots to build on, materials to build with, credit to finance it all--has muted housing and hogged its headlines for at least long enough to cloud collective memory. This was the case before the pandemic, and then, starting in Spring a year ago, accelerated, intensified, went crazy. Thanks to fiscal and monetary switches and levers Uncle Sam threw into action when COVID-19 first appeared, streams of new, cheap, easy-to-get money flowed into the 2020 economy, merging with people's natural flight reflex as the pandemic spread both panic and a too-often-fatal sickness.
Phobia and mania wove together, in turn, with a third societal force – the biological clocks of adult Millennial generation households – to create housing's perfect storm demand curve. Now that that demand boom has fully declared itself, few close observers in housing question its fundamental market-making, upward trajectory.
Still, it's hard not to take a look at something "off" in the demand assumptions bucket. Unpack market-rate housing demand and what you get is a shelter-needing household the continuum of which looks like this:
- Population growth
- Job growth
- Household formation growth
- Income growth
- Family-formation growth
- Buy-vs-Rent growth
Now, we know the continuum's sequential pathway doesn't necessarily follow that specific order in every case. However, most of those elements make up the demographic raw materials of market-rate housing demand.
Now this is where that 268,000 data point figures in, and it impacts the rawest of housing demand's raw material inputs: more people.
Recent Centers of Disease Control data – the national source-code for U.S. population tracking – exposed a jaw-dropping 2020 result of the tally of net deaths, net births, and net new in-migration.
Each subtotal, hit by a 1-2-3 combo of longer-running childbirth trends, pandemic-related deaths, immigration policy-related in- and out-migrations, either shot up to the negative or plummeted to the negative during the year that was 2020.
As a result, the net deaths plus net births population change in the U.S. in 2020 was 267,894, rounded up to 268K. Factor in a highly-likely low number of 250,000 international migrants into the U.S. in 2020, and you wind up with what Calculated Risk contributor Tom Lawless notes this way:
It would not be too surprising if net international migration last year totaled only around 250,000. If that were the case, then the US population in 2020 increased by just 517,894 (or about 0.16%), the smallest increase since 1918, when war and a pandemic resulted in a small population decline.
One year blip or a more structural inflection point in population growth – and therefore, housing demand growth – assumptions? Your call.