Hello Joe.
I agree with you on the whole. There are always a lot of ifs and buts that can't be put into a succinct post.
Here's what I had in mind.
There are lots of examples where towns gracefully collapse over time. Those who stay usually die of old age and their empty houses are demolished. Services are slowly shut down and eventually the few people remaining find themselves living in the countryside.
But I'm guessing things are different in a time when expansionary bubbles collapse. If a country has low private debt levels (meaning low borrowings on property in particular), rent controls, the willingness to demolish dilapidated houses, a functioning police force and some form of social welfare, I see no reason why a population contraction couldn't be managed. Especially if fairly cheap energy is available. Things may even improve, as you say.
If the opposite is true, especially if that country has used a demographic expansion to support a credit bubble and perhaps a brain drain from other parts of the world, a population decline may spell trouble in many cities.
Housing then becomes a buyers' market. Those with not enough equity are forced out as their total mortgage becomes more than the property is worth. Many renting are forced out as their incomes vaporise. As more places becomes empty and dilapidated, those who have money leave.
A cascading pattern is entered. Without the money to support infrastructure, a city will go into terminal decline and crime and violence skyrocket. Businesses then relocate, often overseas. If they can, those left often leave not just the city but also the country for good. Or, sadly, suicide. Drug addiction is a favourite. We're already seeing that.
Good point on the decrease in the value of property having an effect on the geography.
Also, although an initial recession would have the disadvantage of many businesses moving, the decrease in property value and the cost of doing business overall would provide a great opportunity for those who are left. Look at Detroit; interesting things are happening there even thought the property is kind of worthless (or was).
As the old saying goes, "When there is blood on the streets, buy property!"
