It is generally assumed that estradiol is directly responsible for shrinking genitals in MTF people, but I have learned that it is actually lowered testosterone which causes this. I was diagnosed with Hypogonadism more than a decade prior to commencing HRT, and I suffered significant atrophy. For many years prior to HRT, I had Phimosis, where the foreskin shrinks so much as to prevent urination without pain and creating a risk of infection. My genitals had receded into my body, leaving an ugly mess of skin, so while it looked good in panties and swimwear, not so good bare, and a source of some discomfort.
When I went for my consult for GRS, my surgeon said he needed to inspect my glans, and I told him it was impossible and I had not seen it for over a decade, He was surprised and during his inspection, he had to 'squeeze things out to get a sense of what he had to work with (though he still didn't see my glans), which was uncomfortable (and his hands were cold). He concluded there was just enough tissue for PIV, but the depth would have been limited. I had decided on minimal depth already, so it wasn't a problem.
So while shrinkage can be desirable, it may come with complications and some infection risk.
Hugs,
Allie