Shrinking Smartly and Sustainably

Executive summary

Many OECD countries are facing population decline and ageing with significant differences within countries, and these trends are set to continue in the coming decades. Urbanisation, for example, is increasing in most economies as people migrate from shrinking rural areas, yet even in urban areas, about one in five are also shrinking. These complexities pose challenges for policy makers at all levels of government, especially for depopulating places, where labour and skills shortages, declining economies of scale for service provision, and eroding tax bases put increasing pressure on local development. Addressing these challenges requires a multi-level governance approach, looking across a wide range of policy areas, including the public finances, infrastructure, spatial planning, land use, social cohesion and service delivery.

If the consequences of demographic change are not addressed, regions at risk of decline can enter a vicious circle: shrinking populations lead to underused infrastructure, weaker services, and reduced investment, which in turn accelerate depopulation. This can undermine economic resilience, social cohesion and, over time, democratic engagement. When communities feel left behind, trust in public institutions can decrease.

Place-based and forward-looking policies are essential to prevent these dynamics and support more balanced and inclusive territorial development. While there are challenges presented by demographic change, cities and regions – in particular those facing declining and ageing populations – can still seize opportunities and become more inclusive and sustainable. Ageing populations demand age-friendly infrastructure and services, fuelling a silver economy. Developing age-diverse communities and fostering cross-generational interaction can enhance social cohesion and community resilience. Moreover, depopulating cities have opportunities to prioritise quality of life – for example, by rethinking land use, reducing congestion, promoting multigenerational public spaces and facilitating access to more affordable housing. This rebalancing can support more liveable, accessible, and inclusive urban environments, helping cities shift from managing growth to managing well-being. Digitalisation and smart city projects can also advance the well-being of the old-age population through telemedicine and assistive technologies.

Main trends

• Close to one fifth of OECD countries (7 out of 38) have lost population from 2001 to 2022, and a further 7 are expected to do so by 2060. In several of these cases, the expected decline exceeds 20% (e.g. Japan, Latvia, Lithuania, Greece).

• These trends have a strong territorial dimension. In 30 OECD countries, at least 1 small region saw its population fall over the same period.

  • Between 2001 and 2021, nearly 36% of OECD non-metropolitan regions located far from midsize or large Functional Urban Areas (FUAs) experienced population decline. More than half (58%) of the regions where populations declined were far from a midsize or large FUA (see Annex A for more detail on territorial definitions and typologies).

  • An increasing share of the population in OECD countries is living in cities. In 2020, about half (49%) of the OECD population lived in cities, compared to 39% in 2000. Moreover, whilst rural populations in OECD countries grew overall, on average by 6%, they declined in 16 OECD countries.

• Many cities have also seen their populations shrink.

  • While OECD FUAs with over 1 million inhabitants experienced an 18% population rise between 2000 and 2020, with smaller rises in smaller FUAs, over one in 5 FUAs lost population.

  • Smaller cities have been particularly affected. In EU countries, 40% of cities with less than 250 000 inhabitants lost population between 2011 and 2021.

• At the same time, populations in most OECD countries are getting older.

  • By 2050, the population older than 65 in OECD countries will have increased by 49%, while the youth population is forecast to decrease by 5.8%.

  • In most OECD countries (26 countries), rural areas record a higher share of population older than 65 years old than urban areas. On average across countries, this share is more than 4 p.p. higher than in cities. Rural areas have also been ageing more rapidly. Over the past 5 years, the old-age-dependency rate, defined as the ratio between people older than 65 and those aged 15 to 64, has increased on average by 1.9 p.p. in rural areas, compared to 1.2 p.p. in cities.

  • In 2021, there were about 13 working-age people (15-64 years old) for every person older than 80 years in OECD countries, but by 2040 there will be only 7.

Key policy messages

• Create age-friendly places. The over 65s contribute significantly to their communities and the local economy. Expanding opportunities for older workers and building multi-generational workforces could raise GDP per capita by 19% over the next three decades. In depopulating regions, age-friendly policies are particularly critical to maintaining quality of life and community vitality. Ensuring accessible services, especially healthcare, inclusive public spaces, and diverse mobility options can help reduce social isolation, support active ageing, and keep communities vibrant and connected.

• Manage pressures in growing places. Large and economically productive cities are likely to continue expanding, driven by agglomeration effects that boost growth and innovation. However, these same effects can also create challenges such as rising housing costs and increasing pressure on infrastructure. In growing places, policy makers should prioritise expanding the supply of affordable, sustainable, and high-quality housing, including through the repurposing of underused office buildings where appropriate. At the same time, investments are needed to address congestion and pollution – for example, by promoting active urban mobility and encouraging the use of public transport.

• Combine adaptation and mitigation strategies. Adaptation policy responses are needed to help prepare regions and cities for future demographic scenarios, including by adapting public service delivery and infrastructure to demographic decline, and ensuring residents’ well-being. When combined with efforts to mitigate demographic decline by improving the attractiveness of places, these strategies can help retain residents and, indeed, attract newcomers, revitalising depopulating places and often relieving pressures on growing places.

• Align place-based policies with the right territorial scale. Addressing demographic challenges requires policies tailored to the right territorial scale. Recognising the diverse demographic and socioeconomic contexts, place-based policies should go beyond administrative boundaries and consider functional areas and the interconnections between areas. This includes, but is not limited to, Functional Urban Areas (FUAs). This approach can improve resource allocation, service delivery, and urban-rural co-operation, ensuring funding and policies effectively respond to demographic shifts. Enhancing the attractiveness of rural areas can generate positive spillovers for cities under pressure – by easing housing demand, diversifying economic opportunities, and contributing to more balanced territorial development.

• Foster collaboration. Depopulating and low-density places often face reduced economies of scale, making it harder to sustain cost-effective services and infrastructure. Inter-municipal co-operation allows municipalities to pool resources, share services and align infrastructure planning with real-life residence and mobility patterns. Horizontal co-ordination mechanisms such as inter-municipal partnerships and joint investment projects can be especially effective in fields such as education, healthcare and transport. Moreover, strong vertical co-ordination between levels of government, through inter-governmental fora or planning taskforces, can also contribute to aligning strategies, clarifying responsibilities and avoid duplication. Integrating these collaborative approaches into long-term planning frameworks can help deliver services more efficiently across diverse territorial contexts.

• “Do more with less”. Fiscal pressure from an ageing population will increasingly constrain subnational budgets, particularly in countries where regional and local governments are responsible for funding key services such as health and social care. To maintain service quality and coverage, subnational governments will need to adopt innovative and cost-effective service delivery models. This includes expanding digital solutions, establishing integrated service centres in accessible locations and promoting compact development by repurposing buildings, allowing for mixed land use and fostering urban regeneration. At the same time, AI-powered tax modelling and data analytics can enhance fiscal planning and extend service capacity by enabling responsive budgeting and supporting healthcare delivery – especially in depopulating regions facing fiscal and workforce pressures.

• Acknowledge the demographic reality and anticipate. Demographic trends can be difficult to reverse. Policy makers need to acknowledge this to ensure resources are used most effectively. As demographic change reshapes demand for public services, anticipating these shifts can ensure that public facilities are appropriately sized and aligned with future needs, preventing the construction of “white elephants” that can place a long-term burden on already stretched government finances. Through strategic foresight, regions and cities can better adjust to changing settlement patterns amid demographic decline.

Key policy recommendations

1. Acknowledge the demographic reality and anticipate change through evidence-based policy responses by recognising the long-term trends of population decline and ageing across many regions and, by systematically integrating demographic data, population projections, territorial indicators, and foresight methods into strategic planning and public investment decisions.

2. Tailor adaptation and mitigation strategies to regional demographic realities, recognising that in some places, structural population decline requires adaptive approaches focused on sustaining well-being and access to services, while in others, targeted mitigation efforts may help strengthen resilience by addressing labour shortages and supporting economic renewal.

3. Ensure policies are aligned with the right territorial scale, such as functional areas, to improve planning, resource allocation and urban-rural co-operation in response to demographic challenges. This includes, but is not limited to, place-based policies.

4. Adapt spatial planning, land use and housing policies to demographic trends by promoting compact development – through densification in growing cities and more efficient reuse (e.g. infill or brownfield development) and consolidation (i.e. promoting the concentration of people, business and services rather than being spread) in shrinking cities, towns and rural areas – alongside renovation and efficient use of infrastructure and land.

5. Create age-friendly places that support healthy ageing, integrate care systems, and foster inter‑generational communities through innovation and inclusive services.

6. Strengthen co-ordination across sectors and levels of government through integrated planning and vertical and horizontal governance mechanisms, ensuring coherent and efficient responses to demographic challenges.

7. “Do more with less” in shrinking areas by optimising existing assets, avoiding inefficient investments, and reforming fiscal frameworks to enhance cost-effectiveness, and alignment with demographic realities.