In the second part
of the Harvard Joint Center for Housing Studies' latest update on The State of the Nation's Housing, the
authors look at the nation's demographics and how they currently affect housing
and will do so in upcoming years.
report, as many other housing students, points to the sluggish pace of
household growth which has languished in the 600,000 to 800,000 range for
several years. This is well behind previous
decades when the average has been over 1 million. Much of this can be attributed to younger
adults who because of the economy have continued to live with their parents,
continue their education, or share housing with friends. The report extrapolates that there may be 1.1
million fewer households among persons in their 20s than history would predict.
households may represent a pent-up demand that will be released when the
economy improves further there could be a strong boost to the housing market
when the leading edge of the millennial generation (born between 1985 and 2004)
moves into the age group where household formation normally peaks. When the
leading edge of the baby boom was of similar age in the 1970s household
formation averaged 1.7 million units per year for the entire decade.
income is also strongly associated with household formation and while headship
rates across income groups have been fairly constant over the past 10 years,
growth in each group has not. Millions
of young adults joined the ranks of the lower-income population from 2003 to
2013 and this shift accounts for more than half of the drop in household
formations among 20-29 year old adults over that period. The combination of these factors meant that
some 2.5 million more adults in their 20s and a half million more adults in the
30s lived with their parents in 2013 than if 2003 household formation rates for
these age groups had continued.
form millions of independent households over the past five years and because of
the size of this generation the number of households they head is actually
higher than a decade earlier. Given that
headship rate typically rise sharply for adults in their 20s and early 30s, the
numbers of Millennials forming households should rise significantly if
belatedly in the coming years. However
stronger income and employment growth is necessary to drive this change and
this group is on a lower trajectory of housing independence that earlier
generations. Given the current pace of
economic growth it is hard to predict how soon they will finally be able to
live on their own.
declined considerably during the Great Recession. The Current Population Survey indicates that
the number of foreign-born households actually fell in 2009 and 2010. Despite a drop in their inflow and household
formation rates, immigrants still account for a substantial share of household
formation in the U.S. and have been a major source of population growth,
contributing about 25 percent of total growth in the 1990s and 35 percent in
the 2000s. It was immigration that limited what could have been a sharp
drop-off in housing demand that was expected to follow the baby-boom
Domestic mobility is
another important factor in housing. Residential
moves spur investments in home improvements and furnishings, generate income
for real estate agents and lenders, and expand housing options for others but domestic
mobility has been trending down since the 1990s. The share of adults who moved over the prior
year fell from 16 percent in 1996 to just over 11 percent in 2013. This reflects the transition of baby boomers
into age groups less likely to move and lower mobility among young adults who
are the most likely to move. Millennials
and gen-Xers are both tending to be less footloose than their predecessors.
population is a little more mobile. During 2007-2013 a slightly smaller share
of renters had lived in the same unit less than two years and a slightly larger
share had lived there between two and four years. The share of renters in the same unit for
five or more units was unchanged.
The housing market
itself was responsible for a noticeable drop in mobility rates among
homeowners. The steep drop in house
prices with the associated explosion in underwater mortgages, weak labor
markets and limited access to credit all made it harder for owners to sell or
trade up. The American Community Survey
found that share of owners who had lived in their homes less than five years
dropped from 30 percent in 2007 to 21 percent in 2012 while those in their
homes for 10 or more years increased from 49 percent to 57 percent. The report finds this remarkable in the
context of millions losing their homes to foreclosure.
mobility has diminished gains and losses across metro areas. In the midst of the housing boom in 2005
domestic migration was responsible for 30 percent of population growth in the
20 fastest-growing metro areas, a share that dropped to 11 percent in 2013. The
reduced mobility also stemmed outflows from metros that had been losing
populations. The top five metros with positive
net in-migration in 2005 added 320,000 people while the five with the highest
positive net in 2013 added only170,000.
Net outflow in the top five cities that were losing population in 2005
was 640,000; in 2013 the top five lost only 240,000 residents.
income fell another 1.4 percent in real terms in 2012, to its lowest level in
nearly two decades and the median incomes of younger and middle-aged adults are
at the lowest in records dating back to 1970.
The median income for households aged 25-34 fell an astounding 11 percent
between 2002 and 2012, leaving their real incomes below those of the same age
group in 1972.
situation in minority households in this age group is even worse. The median income among minorities in 2012 was
$20,000 below that of a same-aged white household. The Center said two reasons for the low
incomes of young households in general is the widening gap between white and
minority income and that the minority share of the population is growing.
unemployment rate for this younger group jumped from 4.7 percent in 2006-07 to
10.1 percent in 2010 and was still at 7.4 percent in 2013. Employment in this group is essentially at
early 1980s levels.
Households in their
pre-retirement years also saw real income drop.
In 2012 the median for households aged 50-64 dropped to $60,000, a
mid-1990s level although homeowners in that age group fared better, their incomes
fell just 5 percent. Many households in
their 50's and hoping to retire are in particular trouble. Real median incomes have fallen $9,100 among
50-54 year olds and $5,700 among 55-59 year olds since 2002.
reduction of mortgage debt (by 2 percent in 2013) along with higher home prices
lifted real home equity by 24 percent to $10 trillion, more than aggregate
mortgage debt. But consumer debt was up
14 percent from the end of 2010 to the end of 2013, accounting for 26 percent
of aggregate household debt, the highest share since 2004. There is concern that the combination of
falling income and rising debt may be weakening housing demand.
Much of the debt is
education loans which have jumped 50 percent in the last four years and more
than quadrupled over the past decade to $1.1 trillion. It accounts for 63 percent of the growth in
total debt over the past year and for nearly the entire increase in non-housing
consumer debt since 2003.
student debt may play a role in the lagging household formation and
homeownership rates among younger adults.
In 2010 39 percent of households aged 25-34 had student debt compared to
26 percent in 2001 and about half the current share in 1989. Young renters allocate more of their income
to student debt payments; a median of 6 percent in 2010 among those under age
30 which may limit their ability to save, particularly for a downpayment on a
home. Additionally, default rates on student loans are rising at an alarming
rate and this may ultimately limit the credit standing of young adults and
their ability to obtain a mortgage.
Joint Center projects that demographic forces alone will drive household growth
of 11.6 to 13.2 million between 2015 and 2025.
Behind their projections are two trends which together will shift the
age composition of US households and thus housing demand. In the short run the aging of baby boomers
will increase the number of households age 70 and older by about 8.3
million. The cohort of those aged 60-69
will rise by 3.5 million adding to the aging of the population.
2012 survey showed that 78 percent of householders over age 65 intend to remain
in their homes. Over time many of these
homes will require retrofitting to accommodate aging in place and there will be
a greater need for neighborhood services to accommodate homeowners' inability
to drive. When the oldest population
reaches age 85 in 2031 they will increasingly seek alternative situations
offering in-house services such as assisted or group living.
second factor, the aging of the millennial generation, will increase the number
of households in their 30s by 2.4-3.0 million in the next decade but these numbers vastly understate their impact on housing demand. They will account for most of the new
households, some 24 million new households between 2014 and 2025, driving up
demand for rentals and starter homes.
are much more diverse than previous generations and will increase the racial
and ethnic diversity of U.S. households, magnified by large losses of older
white households. By 2025 dissolutions
of boomer households aged 50-69 will reach 3.0 million and those of their preceding
generation 10.0 million. As a result
minorities will drive 76 percent of net household growth in the next 10 years.