TREND WATCH
In December, existing home sales tumbled to their lowest level in three years. At the same time, home values rose at their slowest rate in six years. And housing starts dropped to their lowest level in two years. Industry insiders have been perplexed by the (historically) subpar performance of housing ever since the U.S. economy emerged from the Great Recession a decade ago. What’s going on? The biggest factor has been a decline in household formation over the past decade. To find out what’s driving the decline, we turn to Census data showing how the living arrangements of U.S. adults have changed since the GFC.
In our previous piece on household formation (see: “Household Formation: Why Is It Declining—and Where Is It Going?”), we calculated that the recent slowdown in household formation has translated into an aggregate 2 million households not formed since 2007. We found that more than the entire decline can be accounted for by behavior change among Americans under age 55. But these conclusions, while revealing, give us few granular insights because we define “behavior change” as simply the residual between population growth and household growth.
In this piece, we dug deeper. Using newly tabulated Census data, we analyzed surveys of Americans’ living arrangements—by person, not by household—to determine how behavior has changed since the Great Recession. We’ll begin by looking at the youngest age bracket.
Age 18 to 24. The absolute number of householders in this group is relatively small, both due to the small seven-year age span and to the fact that a large and growing share of these adults live with parents or in college dorms. Over recent decades, a rising share of these youths have been living together with relatives and nonrelatives, which tends to concentrate more adults into one household. What’s going down, on the other hand, are less concentrated households like singles (living alone) and couples (either married or not).
Understandably, this shifting mix is generating a lot fewer households per 100 persons over time. More persons living with parents reduces the ratio by simply taking them out of consideration. And more persons living in more concentrated households—and fewer in less concentrated households—also reduces the ratio. All told, we find that expected householders per 100 persons dropped by 9.4% over the last decade.
Age 25 to 34. Here we find a lot more young adults living on their own either as couples or as living-alone singles. A smaller share are living with their parents. Still, the trends over time are very similar. Both the married share and the total “couple” share (including unmarrieds) are declining over time. The living-with-parent share is rising over time. And the share living in more concentrated households (relatives and nonrelatives) is rising.
For all these reasons, overall household concentration is similarly growing over time. Much of the growth is due simply to the large jump in the living-with-parent share. The increase in high-density nonrelative living also helped, although this was partially neutralized by a slight rise in living alone. All told, we find that expected householders per capita (x100) dropped by 5.9% over the last decade.
Age 35 to 64. In 2018 we need to get to the core midlife age bracket before we see couples as the dominant household lifestyle. And if we group the unmarried together with the married couples, the “coupled” share of this age bracket, after dropping during the earlier postwar era, has stabilized. Even here, though, we see a slight growth in living with parents and in living with relatives and nonrelatives. Single living remains unchanged.
Once again, the net impact on adults per household is positive, though just barely. Expected householders per capita (x100) rose by +0.3% over the last decade. Keep in mind that these figures track only adults per household within each age bracket. But we can be certain that the vast majority of young adults age 18-24 and age 25-34 who are living with their parents are in fact living with householders in this age bracket.
Age 65-74. As Boomers have aged past age 65 over the last decade, the total number of adults in the young-seniors age bracket has surged. The percentage breakdown of this group by household lifestyle, however, has remained remarkably stable. As expected, the share living as unmarried couples has grown dramatically, but it remains small. In 2018, for the first time, this age bracket boasts the highest share of married couples.
Overall, like midlifers, this age group saw a slight decline in expected householders, which translates into an equivalent slight increase (0.3%) in adults per household. Also like midlifers, the total number of adults per household in this age group was undoubtedly boosted further (though not as dramatically) by an increase in adult children living with their parents.
Age 75+. Among the old-seniors, the biggest long-term shift has been the sizable growth—especially in the first two decades between 1967 and 1987—in the share who live alone. This shift happened when the G.I. Generation was entering this age bracket and was fueled by the G.I.s’ greater wealth and their access to newly boosted federal entitlement programs.
Since 1987, this shift has gradually backtracked. Living alone has declined, and living with a spouse has grown—thanks mostly to the contemporaneous rise and fall in the share of widowed women over age 65. Expected householders per capita (x100) dropped by 1.7% over the last decade, with an equivalent rise in adults per household.
Conclusion: Since the Great Recession, behavior change has pulled down the number of expected householders in each and every age bracket. This drop-off has been significant enough to help reverse the steady, decades-long decline in the average number of U.S. adults per household.
Average adults per household rose from 1.92 in 2007 to 1.95 in 2018. That may not seem like much. But when put into context, it stands out as a historical anomaly. Over the prior half-century, adults per household had been on a steady decline, dropping from a high of 2.48 in 1948 (the first year for which we have data) to a low of 1.91 in 2003. The ensuing plateau from 2003 to 2007—and the rise ever since—poses a serious long-term challenge to the housing industry. More people per household, of course, translates directly into less demand for housing units.
For the construction industry as a whole, the long-term future holds plenty of promise. Corporate plant capex remains strong. Retail will eventually rebound. Aging-in-place Xers and Boomers will keep spending heavily on home remodeling for many years to come. And the medium-term political prospects are improving for an infrastructure boom. But a positive sea change in the construction of new housing units, either for sale or for rental? Don’t bet on it.
TAKEAWAYS
Experts are puzzling over the vulnerable state of the U.S. housing market, which recently turned out some of its worst monthly numbers in years. What’s going on? Our analysis of Census data reveals a decline in household formation in every age group (especially below 35) since 2007.
- Much of what critics say about Millennials “killing” the housing market is true. Their low marriage rates are indeed leading to fewer new householders. In part, this trend can be attributed to a lack of financial well-being: Millennials are content to wait until they’ve established their careers and their finances before marrying. (See: “Are Finances Keeping Millennials from Marrying?”) In the meantime, Millennials are happy living with parents or with friends, whether in conventional apartments or new co-living spaces. To be sure, these trends may reverse if the economy continues to improve. But a full decade has passed since the GFC, and we haven’t seen any signs of a reversal.
- Housing affordability isn’t a key factor suppressing household formation. The housing industry’s defenders argue that Americans would buy or rent more homes if they became more affordable. But national indexes do not show any dramatic change in affordability for homebuying or for renting. If anything, homebuying is more affordable now than in earlier postwar decades—even after recent mortgage rate hikes. To be sure, these are national indexes. Regionally, there are large and growing gaps between low affordability in coastal and Sun Belt urban centers and high affordability in the heartland. But these higher prices seem to have reached a fairly stable supply-and-demand equilibrium.
- Behavior change could darken the housing industry’s already-gloomy outlook. The demographic challenges facing the housing industry are well known: Slowing growth in the adult population over the coming years and decades means slowing growth in the number of households. This demographic outlook is virtually set in stone. Even with no change in household behavior, population growth is projected to generate 32% fewer new households in the year 2030 (barely 900,000) than were created in 2018 (nearly 1.4 million). The projection is lower, even, than the very disappointing yearly average over the last five years (just over 1.0 million). Few homebuilders care to imagine a future in which behavior increasingly favors “togetherness” lifestyles.
