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. 

This Center's 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.


These potential 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.

Higher personal 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.



Millennials did 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.

Net immigration 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 generation.

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.



The renter 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.

Reduced residential 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.

Median household 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.



The income 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. 

Meanwhile the 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.

A continued 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. 

This soaring 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.

The 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.

A 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.

The 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.

Millennials 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.