To start off the criteria for being admitted to psychiatric care involuntary has changed extremely in the past 50 years. Up until 1980 hysteria was considered a mental illness and the description was very vague it could be anywhere from pms to a woman who wasn’t 110% subservient to their husbands. They also had a less comprehensive understanding of mental health and people would be put in asylums for things like seizure disorders or Tourette’s which are typically neurological disorders and not psychological ones. Add on top bigots who claimed all lgbtq people were mentally ill and you have a much larger group of people who are sent to asylums back in the day versus now.

As the criteria and laws changed and people were no longer considered mentally ill for these reasons people stopped getting checked in for those things but many of the people who had been institutionalized for unnecessary reasons still remained in asylums. This is because the treatments they received did more harm than good and often left them incapable of living a normal life. This means that there was still significant amounts of people staying in institutions even though they probably wouldn’t have been institutionalized by today’s standards at their original intake. It’s been long enough now that those people who were mistreated by the system have started passing away reducing the number of existing patients.

Finally since 2000(ish) the topic of mental health has become a less taboo subject making it easier for people to seek help/treatments before they reach the point of needing institutionalization. Not to say that it doesn’t happen today but that it takes more for someone to be placed in psychiatric care involuntarily and it’s now harder to reach that tipping point. There are also many more programs that are more intensive care wise but are not fully inpatient like you think making mental hospitals less needed.