Real estate investors and developers are inherently optimistic. Most of the time, that is a positive trait in a developer. However, when storm clouds are on the horizon, that same optimism can be a fatal flaw. Two data points that were reported this week may be storm clouds on the horizon for the United States in general, and Michigan specifically. Developers and investors who fail to monitor this trend may have a blind spot for the potential for decreases in property value and marketability.
First, the preliminary data from the 2020 Census was reported. The data shows that the United States had its second-slowest growth ever. Only the decade after the Great Depression had a slower growth rate. While the news was bad for the country in general, it was worse for Michigan. Michigan actually lost population in the last decade.
The second data point, which is obviously related, is that the birth rate in the United States continues to decline. This declining birth rate will eventually lead to population decline unless the declining birth rate is replaced by immigration. For a view of what declining population means for a developed country, a view of the economic issues facing Japan is helpful. Japan will see its population dip by 30% over the next few decades unless the country’s birth rate increases or immigration is increased. The impact on the economy in Japan will be devastating, as there will not be sufficient workers to care for older citizens, or even fund the social safety net for such elderly citizens.
What this means for the real estate economy should be clear. Without population growth, there will be much less need for new construction, which means there will be fewer construction jobs, financing, etc. This could eventually lead to a downward, self-fulfilling, cycle of economic contraction. Put bluntly, we need more people. Whether through births or otherwise. The economy depends upon growth.
