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Population growth is often used as a major justification for higher housing prices, but this is largely flawed. Obviously, dramatic spikes and declines will necessarily affect demand and therefore prices. However, the typical gradual increase in population has historically not led to substantially higher prices, as explained in detail in Professor Robert J. Shiller's book Irrational Exuberance - 2nd Ed. Furthermore, an increase in housing prices due to increased population should also drive up rents to a similar extent. When there is a large disconnect between the increase in housing prices and increase in rents, population is not a likely explanation.

The argument was moot in the Boston area for the past few years as census estimates indicated that Boston was actually losing population. CNN wrote "Hurt by skyrocketing housing prices, people are leaving San Francisco, Boston and other large cities in droves." (This article was originally available at the now defunct URL http://www.cnn.com/2005/US/06/30/census.cities.ap/ ) The decline was widespread and the entire state of Massachusetts was also pegged as having a declining population for multiple, consecutive years (see the Boston Globe article entitled Census estimate a concern for state: Seats in Congress, US funding at risk.)

Then at the end of October 2006, news broke that the Census Bureau was revising their estimates for Boston at the behest of Mayor Menino and that the new estimate was that the population of Boston had actually increased (see the Boston Globe article entitled Getting numbers right). Unfortunately, this adjustment for what appears to be just Boston Proper was misconstrued by some as proof that the housing market isn't precariously overpriced. Some key points to note:

• The revision appears to only be for Boston Proper, not the Greater Boston Area. The state is still losing population based on the current estimates (further estimates are due in December, according to the Globe article).
  
• The Census Bureau's original data showed a large number of people moving out of Suffolk County and the bulk of this loss was estimated to come from Boston since it makes up the bulk of population for the county. However, Menino successfully argued that the loss for the county should be discounted for Boston Proper due to the "rake factor." Presumably, this means that the rest of Suffolk County is actually in worse shape that previously estimated since the losses came from elsewhere. (See the Guardian Unlimited article Census Revision Means Boston Is Growing.)
  
• The other factors which were prominent in prompting the increased estimate are not necessarily a cause for optimism either as they could be construed as a sign of economic weakness for the city. One of the major factors cited by Menino was an increase in the number of new dormitories - however, college students clearly aren't going to have the income necessary to drive the economy to the same extent that professionals do and they won't be supporting the demand for typical properties in the area because 1) they are on tight budgets and 2) they are typically in dorms. The other major factor cited was that commercial buildings were converted to housing. On the one hand, this does create room for the population to grow, but on the other hand, fewer commercial buildings means fewer jobs. (See the Boston Globe article entitled Hub population rose, Census review finds.)
  

In conclusion, the recent revision in the population estimate for Boston Proper would not necessarily be a cause for optimism, even if there were a direct, substantial impact on real estate prices.

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