Population decline and the structure of housing

In communities with a growing population the structure of housing can easily be adjusted to changes in demand, through building new dwellings of the type for which demand is increasing. In communities with a shrinking population, by contrast, both the total supply and the structure of housing is given, inherited from previous decisions on the number and type of dwellings to build. As the population declines an increasing mismatch between the types of housing supplied and demanded may therefore arise in some communities. We use a panel data set of 430 Norwegian municipalities for examining these issues. Almost 50 percent of the municipalities have a shrinking population. We use data from municipalities with increasing population to build an econometric model that explains the structure of housing in such communities. This model provides information about the optimal structure of housing and is used to predict the optimal structure of housing in municipalities with a shrinking population. Next, we use the discrepancy between the actual and predicted housing structure to estimate the mismatch in housing structure in the shrinking municipalities. Finally, we discuss the implications of a mismatch in the housing market. Presumably, with declining populations in many countries, even at the national level, mismatch in many local housing markets may become an even more serious problem in the future. A continuing urbanization will make this problem even more serious.