Tag Archives: Current Population Survey

JCHS: Pent-Up Demand for Additional Household Formation is Fraught with Uncertainties

by George Masnick

Fellow

In early 2011, economists at the National Association of Home Builders (NAHB) reported that the slowdown in household formation that started in 2007 with the advent of the Great Recession had produced a 2.1 million household formation shortfall by 2010. The authors concluded that the demand for new housing should accelerate dramatically once the economic recovery releases this “pent-up” demand. Another pent-up demand calculation, by Jed Kolko at Trulia, estimated 2.6 million “missing households” in 2010. After three additional years in which the economy has improved on many fronts – albeit at a slow pace – the 2013 Trulia deficit in the household count was still estimated at 2.4 million. But how solid are these estimates and how likely is it that household formation rates will return to pre-recession levels?

 

One difficulty in making these calculations is that actual household growth estimates since 2007 vary considerably from year to year and are inconsistent among data sets (Figure 1). There is good reason to believe that the most widely used data to track household growth, the Housing Vacancy Survey (HVS, used in the NAHB calculation), has seriously underestimated the number of US households – and as a result household growth – since a revision in methodology in 2003.  The HVS’s average annual estimate of household growth since 2007 of 550-600,000 contrasts with the American Community Survey’s (ACS) estimate of 700-800,000 new households annually and the higher Current Population Survey (CPS) growth numbers of over 1 million new households annually since 2010. Without agreement on actual levels of household growth since 2007, it is quite impossible to gauge the shortfall in growth, and therefore the probable level of pent-up demand.

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Notes: 2013 ACS not available.  2010-2013 growth for the ACS a two-year average of 2010-2011 and 2011-2012 data.

 

The method used to estimate the “normal” level of household growth also matters. The NAHB number was based on a simple difference between “actual” household growth estimates for the 2007-2010 period, and a straight line trending of HVS household growth prior to 2007. Over the very short run this approach may be appropriate, but would not be expected to hold up over a longer period.

 

Kolko’s calculations are more sophisticated. Using CPS data, he computes the change in age-specific headship rates (the share of persons in an age group that head an independent household) from the average 2000-07 pre-recession levels. This change, when multiplied by the official annual population estimates for each year, gives the deficit in number of household formations in each age group due to changes in the propensity to form households. This method corrects for the effects on household formation of simple changes in the size and age structure of the adult population, which the NAHB method does not take into account. But what Kolko’s calculation does not control for is the increasing share of minorities in the population. And since Hispanics and Asians have lower headship rates than non-Hispanic whites this oversight is not trivial (Figure 2). In fact, a certain amount of the decline in household formation is due to the changing race/Hispanic origin composition of the population and not to the recent economic downturn.

 

This issue is exacerbated by an undercounting of growth in Hispanics and Asians over the past decade, as revealed by the results of the 2010 Census. The underestimating of Hispanic and Asian shares of the population in the CPS during the 2000s also means that pre-2010 CPS headship values are biased upward by overcounting the white share, due to incorrect population weights in the CPS survey, making the 2000-2007 benchmark headship rates too high, and exaggerating the decline in age-specific headship pre-versus-post recession.

 

Even controlling for both age and race/Hispanic origin in the different surveys, we know that household formations have slowed relative to pre-recession levels, we just do not know by how much given concerns just discussed. We also know that the slowdown is likely a consequence of the recession. But, we are uncertain about whether the reduced level of household formation has been primarily driven by economic factors, or whether it is the result of more fundamental changes in attitudes and behavior regarding independent living by today’s young adults that might be partly recession-driven, but may also have deeper roots.

 

Lower rates of labor force participation, lower incomes of those in the labor force, rising rents, greater student loan debt and tight mortgage lending conditions are economic factors that could partly explain low levels of independent household formation. But we do not know whether these effects are likely to be short-term or long-term as an improving economy and governmental initiatives could reverse many of these factors quite quickly.

 

But trends in college and graduate school enrollment, the structure of the labor force, the timing of marriage and childbearing, and attitudes about co-residence might lead millennials to form independent households according to a different timetable than the generations that preceded them, regardless of economic conditions. Going back to school for retraining is becoming increasingly necessary for technology oriented jobs in a rapidly changing economy. Employment in start-ups, freelance work, and spells of temporarily working long hours in different jobs and on various projects, followed by periods of downtime, are increasingly common. The timing and sequence of important life-course decisions such as co-habitation, marriage, and childbearing have become more fluid. Intergenerational interdependency at various life-course stages has also changed, with parents playing a larger role in financially supporting their children as young adults, in helping to raise grandchildren, and in opening their homes for spells of co-residence when their children ask. These factors may have inertia that will make them less responsive to economic changes.

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Source: Joint Center tabulations of CPS data.  Average of 2011, 2012 and 2013 values.

 

And even if market forces are the primary reasons for depressed rates of household formation, geographic variations in job and income growth and housing costs and availability mean that the magnitude and pace with which pent-up household formation is released should vary in different parts of the country. For all these reasons calculations about the extent of pent-up demand for housing and speculation about its causes, when demand will be released, and what kind of housing will be required to meet future demand are fraught with uncertainties. The latest Joint Center household projections hold household formation rates constant at average 2011-2013 levels, making no allowance for the future release of pent-up demand, and should therefore be considered conservative.

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JCHS: Childless Households Have Become the Norm

Childless Households Have Become the Norm

 by George Masnick
Fellow
In 1960 almost half of all households were families with children under 18.  Since then, the number has fallen to under 30 percent (Figure 1).  By definition, the declining share of family households with children exists because households without children have increased more rapidly (Figure 2).  There are many reasons for this trend: delayed age at marriage and later age at childbearing, smaller family sizes, higher divorce rates, and more couples choosing not to have children (Table 1).  The changes in each of these measures over the last few decades are quite striking. In 1960 the median age at first marriage was 22.8 for men and 20.3 for women, compared to 28.6 and 26.6 in 2012.  The share of households with four or more people in 1960 was over 40 percent, falling to just under 23 percent in 2012.  Women who were 25 in 1960 ended their childbearing years in the mid 1980s with only 8.5 percent of them remaining childless. Women born in 1960 finished childbearing in 2010 with nearly twice as many of them childless (16.3 percent). In 1960, only 13 percent of all households were single persons, but by 2012 that percentage had risen to 28. All of these trends result in households having fewer children and fewer households having any children at all. (Click charts to enlarge.)
 masnick041513_figure1
Source: Current Population Survey March and annual Social and Economic Supplement, 2012 and earlier. Table FM-1.  Minor children numbers from Census Bureau’s population estimates for July 1 of each year.
masnick041513_table1

Source: Census Bureau Current Population Survey historical tables.

The interesting aspect of this long-term trend is that it continued in spite of the strong upswing in the sheer number of American children, which grew after 1990 (also Figure 1).  That increase is due to the largest baby boomers having their own children (the echo boom) and to childbearing by the flood of immigrants who arrived between 1985 and 2005.  (Note that in 2012, fully 87.5 percent of children under the age of 18 who have an immigrant parent were themselves born in this country.)

To be sure, baby boomer and immigrant childbearing did increase the actual number of households with children.  For example, the number of households with children under the age of 18 increased from 33.3 million in 1985 to 38.6 million in 2012. This 5.3 million increase was far less than the 11.3 million increase in total number of children in the population over this period because many households with children contained two or more children under the age of 18.  More importantly, however, the increase in households without children surpassed the 5.3 million growth of households with children by a considerable margin.
Two key reasons for the recent increase in childless households have been the aging of the population and increasing longevity. The large baby boom generation (age 45-64 in 2010) is now entering the empty nest stage (at least regarding children under 18). Between 2002 and 2012, households with at least one child, headed by today’s 45-64 year old cohort, declined by 12.3 million. There are still 11.5 million 45-64 year old headed households with children, and most will become households without children over the next decade.  Furthermore, empty nest households headed by those over the age of 65 are surviving longer and longer, making it likely that the trend in the decline of households with children will continue well into the future.
Significantly, the decline in the number of households with children accelerated after 2007.  Much of the decline can be explained by the sharp drop in the number of births. Annual births rose from just over 4 million in 2001 to over 4.3 million in 2007, the highest on historical record, but then fell to just below 4 million in 2011.  The total fertility rate (births per 1000 women age 15-44) fell from 69.5  (a 17 year high) to 64.4, a decline of 7.3 percent over this same period. Both the decline in births and the drop in the fertility rate are linked to the decline in immigration that followed the Great Recession. Because newly arrived immigrants are concentrated in the childbearing ages, and because immigrants have higher fertility than the native born, the loss of immigrants has had a disproportional effect on declining fertility.  The effect of the Great Recession on lowering fertility among the native born is also of importance, but this decline could be temporary.  The echo boom generation began to turn 25 in 2010, and has most of its childbearing years yet ahead of it. A return to higher levels of immigration and/or a rebound in fertility could reverse the decline in number of births and ease the long-term decline in the share of households with children, but will not likely reverse it.

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