Housing demand is surging across the board, in contrast to 2020 when demand shifted from apartments to single family houses. Now, both home prices and apartment rents are rising much faster than overall inflation.

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Yet America’s population is growing at a snail’s pace. Without more people, how can there be demand for more housing?

Ignoring at first the type of structure, housing demand is mostly proportional to population growth. The level of population is much less important than the growth rate. Buildings last a long time. Unlike bananas, a house or apartment building does not need to be replaced very often. But when we have more people living in the nation, then we need more housing.

America’s population growth is slowing sharply. The official estimates show that year-to-year growth slowed sharply since 2016, falling to just 0.35% gain in 2020. This was mostly due to less net foreign immigration. Unofficial estimates by Tom Lawler put 2021 growth even lower, at 0.15%. (Update: The Census Bureau just announced 2021 growth was 0.13%.)

We’re on a path to increase our housing supply by 0.9% in 2021. (Total housing completions will be about 1.3 million unites, plus about 100,000 manufactured home shipments, minus around 100,000 demolitions and abandonments. Last year the country had 140.7 million units.)

Housing supply seems to be growing faster than underlying demand based on population, so something unusual is going on. That unusual factor is household formation.

A household is one or more people living in the same housing unit. The ratio of households to population changes gradually over time, typically rising. That means some combination of smaller families and fewer non-family roommates. This past year the trend sharply accelerated, with the number of households up 1.2 percent even though population growth was very low.

Such a shift could be driven by income or other factors. Strong incomes mean people don’t need roommates as much. Each person can go his or her own way. Young people with good income can move out of their parents’ home. And some couples find divorce is more affordable when both are earning good money.

COVID-19 may also have motivated some college students to move out of dormitories—with their restrictive rules—to apartments. People in dorms and other group living facilities are not counted as households.

Additionally, renters who miss payments but are protected against eviction do not need to find a new roommate when one moves out. Homeowners in a mortgage forbearance programs can be more relaxed about finding other people to share their home costs with.

The strong gain in households explains how we can have, simultaneously, stronger demand for both single family homes and apartment.

The future is likely to show total demand continuing at a high level. Fiscal and monetary stimulus will keep incomes strong in 2022.

At some point, the Federal Reserve will raise interest rates to fight inflation, That will raise costs for homeowners and landlords, though not immediately, but as new loans are made and old ones paid off. Higher costs will encourage larger household sizes. The Fed’s tightening will also slow income growth, which will require many people make more frugal housing decisions. This slowdown in housing demand is probably a few years away, but it’s certain to eventually come.

Home prices and the value of apartments will stop their meteoric rise at some point in the next few years. That does not necessarily imply a drop in home prices or rents, but it certainly dictates slower rates of appreciation.