Chicago’s population is down about 25% from its peak back in 1950. That statement might conjure up images of empty blocks of homes, as you see in Detroit. In fact, Chicago remains quite crowded. I cannot find the article, but I recall reading that Chicago now has more households than ever before. Average household size has shrunk dramatically since 1950, due to factors such as fewer children and more independent living for young adults and the elderly.
The OC Register reports some seemingly odd data for California. Its housing stock has grown since 2020, its population has shrunk, and yet home prices have soared. This has led to dark conspiracy theories that there are lots of empty houses in California held by speculators, and that this is boosting prices. Not so.
If California’s population is well off its peak, and developers keep on building housing, why does the cost of living in the Golden State remain lofty? . . .
Start with the basics: California had 38.2 million residents living in households last year – that’s down 375,800 since 2020, or a 0.9% loss. In the same timeframe, California’s housing stock grew to 14.8 million residences – a 432,700 improvement since 2020, or 3% growth.
The puzzle can be resolved if we consider the nearly 4% decline in average household size:
The average number of Californians living in an occupied housing unit was 2.75 last year – that’s down from 2.86 in 2020. That’s not an insignificant change across 39 million residents.
Why did it occur? There’s the pandemic effect of people wanting larger living quarters, often shunning roommates. Others got historically cheap mortgages in 2021-22 and won’t move, no matter how oversized their residence is for their needs.
Some of this trend may be adult children leaving the parents’ home – with destinations both in and out of state. Young families frequently exited for other states, too. Or it’s older residents losing a spouse.
No matter the cause, smaller households gobble up housing supply.
In addition, birthrates are declining.
I believe that Kevin Erdmann was the first to document the fact that a booming economy in a housing constrained market (such as LA) leads to population loss, as working class families move to cheaper states and are replaced by younger childless professionals. Selfish empty nesters like me live in houses that are far too big for our needs. (I recall back in the 1990s driving a Chinese visitor around one of the nicer neighborhoods in Newton, Massachusetts. The awestruck lady asked how many families lived in each house. I gave my wife the “Who’s going to tell her?” look.)
PS. Although Chicago remains relatively “full” despite a 25% population decline; there are rust belt cities that are much worse off. Detroit, Cleveland and St. Louis have seen population declines of 60% to 70%, and thus do have vast areas that are emptying out.
READER COMMENTS
David Henderson
May 18 2024 at 1:48pm
Good post.
Kevin Dick
May 18 2024 at 2:26pm
I just wanted to note that Kevin Erdmann is bad for my mental health. He’s so clearly diagnosed the problem that it’s persistence alternately depresses and angers me. When most people discuss housing, I want to grab them by the shirt and yell, “Have you not read Kevin Erdmann!” I’d rather be thinking about cool things to do with LLMs.
David S
May 18 2024 at 8:22pm
I feel your pain–it’s best to limit contact with the other housing people from Mercatus–except for Emily Hamilton because she’s researched some more hopeful conditions in Virginia and Texas.
Definitely don’t click on a recent link at Marginal Revolution to a paper that studied contemporary attitudes housing. It reveals that most people don’t believe that increasing housing supply will improve affordability.
Kenneth Duda
May 18 2024 at 9:04pm
I could have written your post, Kevin. I too have grown tired of reading Erdmann because it’s sort of like living the hypothetical, “what if Cassandra [of Greek mythology] was a blogger?” Whether it’s housing, or trade, or monetary policy, it is so amazing how we fail to take advantage of the lessons of economics. It would be if we were building computers out of vacuum tubes. “Oh sure, some egghead wrote some paper about transistors, but they probably don’t actually work, and anyway, it’s politically unpopular to make computers out of transistors, so it will never happen.”
-Ken
Kevin Dick
May 19 2024 at 3:52pm
Sounds like both you and David S generally read the same sources I do. Then my non econ friends ask me what I think about a socio economic problem. “Well, we know how to solve this problem, but you’re not going to like it…”
Ahmed Fares
May 18 2024 at 3:56pm
I did a Google search and came up with this which mentions that declining household size:
A deep dive into census data shows grounds for cautious optimism
Rajat
May 18 2024 at 7:34pm
The ‘selfish empty nesters’ comment reminded me that while living in Washington DC for a few months in 2011, my wife and I lived in a one-bedroom ground floor apartment with a detached bathroom and small laundry cupboard containing a washer and dryer. The kitchen-living area was open plan with a generous sofa and small ‘dining table’ for two. It was perfectly adequate for our lives then (easy to keep clean too!), although we didn’t have people over during that period. Both before then and since, we’ve not lived in a normal detached suburban house, but even so, we have stayed in places at least twice as big. In the case of our latest move, it partly due to the Covid and post-Covid hybrid working lifestyle. And it’s a bit to make our occasional social and family hosting more comfortable, but mostly just because the feeling of more space and light is nice to have. At the same time, I shudder at the thought of living in a Winchester-type house with nearly-always vacant rooms accumulating dust.
Off-topic, but when I was squinting at the title of this post on my RSS reader without my reading glasses, I thought it said “Prediction and Density”, and I thought it might have been a reference to the recent Works in Progress article on the reasons for the non-emergence of prediction markets. You are mentioned as supporting the subsidisation of an NGDP prediction market. I’m not sure if you have seen in, but I presume you would have comments on that article.
MarkW
May 19 2024 at 7:19pm
I am sure that the number of occupied housing units in the overall Detroit Metro area is at an all-time high (as is the population itself, I believe). The emptiness of the core city is a the most famous case of depopulation due to urban dysfunction. And I also understand that certain impoverished neighborhoods of Chicago on the south and far west sides have Detroit/Cleveland/St Louis levels of abandonment.
Still, it’s a great point that we have a kind of Red Queen situation where it’s necessary to build a lot of new housing just to maintain current population levels.
Bobster
May 19 2024 at 10:33pm
Consider policies as well.
Even if housing stock has increased, policies like inclusionary zoning have made building the next unit much more expensive.
Cities in California have passed a slew of costly mandates in recent years.
Comments are closed.