Imagine All The People…

Lawrence Yun, the Chief Economist of NAR and my doppelganger, has a new post up in which he discusses the growth in global population:

In regards to the United States, some have claimed that the large number of people retiring and an eventual dying off of the baby boomers will mean less housing demand in the future. This ignores one simple fact about the broader population and not just the baby boomers. Every year about 3 million additional people live in the U.S. The projection by the Census further calls for more people for the foreseeable future with the total tally rising to 436 million by 2050 from the current total of 311 million people. Such growth assures steady housing demand.

The stabilizing population, according to experts, is to be around 9 to 10 billion people. Hard to think about what all this means. Demand for real estate is automatically created. But how many by that time will be able to say that they own a property of their own?

He ends by saying, “So imagine a condition where you see twice as many people around your local town and spatial area. Is that too much or it that absorbable?”

I’d say I’m one of those who have claimed that the large number of Baby Boomers retiring and eventually going to join the great Drum Circle in the sky would mean less housing demand in the future. So I find Lawrence’s line of thinking very, very encouraging: 3 million more people live in the U.S. every year. Hence, housing demand will be robust.

Maybe. But three things come to mind here.

First, global population growth is not U.S. population growth.

Second, housing demand as a function of population growth clearly ignores the very troubling trends in the generation most likely to replace the Boomers in the United States: the Millennials (or Gen-Y).

Third, the issue for real estate industry isn’t so much generic “housing demand” but what kinds of housing demand we will see.

Global Population Growth vs. The West

The first place to delve a little deeper is in the global population growth numbers. One might start here, at

SI: So what happened?
NH: Well, all these trends turned out to be temporary. What Ehrlich and many others missed was the dramatic further decline in birthrates that would soon come. The American baby boom turned into the baby bust, resulting in today’s smallish Generation X—whose much smaller numbers of native-born U.S. births per year were later hidden, to some extent, by higher rates of immigration. Birthrates fell even more dramatically in Europe, Asia, and the former Soviet Union, and unlike in the United States, those birthrates stayed low. In fact, they fell well below the level needed to sustain their populations over time. Russia is now experiencing the steepest sustained population decline of any society since the bubonic plague. Japan is now in its fourth year of depopulation. And in recent years, the phenomenon demographers call “sub-replacement fertility” has even spread to many developing countries, including Brazil and parts of the Middle East, including Iran.

SI: But then why is the United Nations telling us that world population will grow from seven to eight billion in just the next 14 years?
NH: Partly it’s because there are some regions where the birthrates are still comparatively high, such as sub-Saharan Africa. The U.N. believes these rates are sustainable. I believe they aren’t. Do you really think that Nigeria in 2050 will have twice the population of Western Europe? It’s also because we are still facing a population explosion of seniors around the world. As my LifeCourse colleague, Phil Longman, recently noted in an article for Foreign Policy magazine, the U.N. now projects that over the next 40 years more than half of the world’s projected population growth will come from increases in the number of people over 60, while only 6 percent will come from people under 30. In fact, the U.N. projects that, by 2025, the population of children under 5, already in steep decline in most developed countries, will actually start falling globally. And that’s even after assuming a substantial rebound in birth rates in the developed world.

So the first thing to notice is that the world’s population might be growing, but they’re definitely not growing in the developed Western world. The second thing to notice is that the growth in population is coming disproportionately from people living longer.

So you, the average REALTOR on the street, should not be planning on twice the people in your local town: most of the new babies are being born over in Nigeria and Sudan and other countries that happen to share a common thread that most Western media sources and pundits do not like to discuss. (Hint, it starts with “I” and ends in “-slam”.)

Even within the United States, some of our cities and states have already achieved Western European levels of non-reproduction. For example, San Francisco lost 40% of its children (age 17 or less) from 1960 to 2010, causing the SF Chronicle to fret that San Francisco is becoming a child-free zone.

It Isn’t So Much the Boomers Retiring, But the Millennials Failing to Rise

The second, and probably more important point, is that it isn’t so much that Baby Boomers are retiring… but that the Gen-Y/Millennials are failing to rise up. Most of it isn’t their fault.

The older Millennials (those 30 and above today) are relatively okay, but the young people who entered college from 2007 on have spent their entire adult lives in the midst of the Great Recession caused by the housing crash. I’ve been writing about Millennials for some time, as a pet hobby topic, and you can find some of those posts throughout this site. Generation Screwed face some of the strongest headwinds ever in history.

The Millennials have the worst employment prospects of any American generation since World War II, have enormous college debt loads thanks to the education bubble, and face the prospect of higher taxes to shoulder the burden of the retiring Boomers. NewGeography, once again:

SI: Yes, but we hear constantly these days about how pension plans are going broke.

NH: That’s not a coincidence. Population aging means there are fewer workers to support each retiree, and that has all kinds of implications, not just for pension finance, but for the economy as a whole. In places like Greece, Spain, and Italy, we are looking at societies in which, by the mid-2030s, half the population will be over 50—and in which more people will be celebrating their 80th birthdays each year than will be born. How are things going to work out politically when a decisive majority of the voting age population will be retired or near retirement? Already, the inversion of the age pyramid is the underlying story behind most of the economic turmoil facing Europe today. Slow growing or shrinking workforces diminish consumer demand, forcing capital to take evermore risks in search of reasonable returns. While demography is not destiny, it’s the tide in which we all must swim.

Even assuming that they want to be homeowners, it isn’t at all clear that they will be able to purchase a house until well into their late 40’s and 50’s. And of course, that has an impact on family formation… already low enough to begin with among college-educated Millennials with their skewed male-female ratios.

The Issue, Then, Isn’t Housing Demand; It’s Kind of Housing Demand

So the real issue, I believe, isn’t whether demand of housing will remain or not. Of course demand for housing, generically stated, will be robust as long as we have some moderate population growth from babies (U.S. is just above replacement at 2.1 children per woman) and immigration. Very few people demand to be homeless.

The issue is whether the demand for housing will be through ownership or rental. Given the factors facing Millennials, I just can’t see how anyone is optimistic about that generation buying all the homes that the retiring Boomers want to sell.

There is little doubt in my mind that rentals will be a major feature of the housing market going forward. There is also little doubt in my mind that the industry, as it is set up today, cannot survive on rentals alone. The compensation structure, the work-to-dollars ratio, etc. etc. all militate against real estate agents making a good living helping renters. The training and focus of the average real estate agent is not on renters, landlords, and their issues, but on buyers and sellers.

One of the major strategic questions coming up, then, is what the real estate industry will do in response to Renter Nation, and when it will get around to doing them: ahead of the curve to get ahead of the trend? Or chasing it, as the industry has done on technology and Internet?

So go ahead and imagine, as John Lennon sang:

Imagine no possessions
I wonder if you can
No need for greed or hunger
A brotherhood of man
Imagine all the people sharing all the world

I can. But not one of the brotherhood of man is possessing a house in that world of sharing.


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Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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