A September 2010 working paper released by the Joint Center for Housing Studies at Harvard University presents updated household growth projections for 2010 to 2020 based on trends established after the onset of the recent recession. These projections continue to show sizeable demand for new housing, but at a reduced rate from projections made just last year.
The projections are based on data from the Current Population Survey (CPS), a monthly survey of 50,000 households conducted by the Census Bureau. Based on the average rate of household growth for various age groups in the period from 2007 to 2009, the authors project that 11.8 million to 13.8 million additional households will form between 2010 and 2020, 6% to 6.8% below 2009 projections for the same period.
From these household growth projections, the authors estimate that demand for new single family, multifamily and manufactured homes will also continue to grow, but at a slower pace than was estimated last year. They predict 16.4 million to 18.7 million units will enter the inventory by 2020, a drop from the 17.2 million to 19.7 million units projected a year earlier. New households are expected to account for more than 70% of this demand, with remaining demand resulting from normal turnover of housing stock.
The authors discuss the importance of the recession on household growth projections, in particular citing a significant downward shift in headship rates among those under 35, which appears to be caused in part by unemployment. Headship rates measure the rate at which households form as the population grows and changes, and are likely to decline in an economic downturn as adult children return to their parents’ home and families move in together to share costs.
CPS data from 2007 to 2009 reveal a drop of 338,000 in the number of foreign-born households under 35, compared to a drop of 2,000 native born households in the same age group. Based on this observation, the authors predict that the decline in household growth will be driven by declining net immigration even more than by declining headship rates, as fewer foreign-born people enter the country and more leave due to the slowing economy.
The working paper, “Updated 2010-2020 Household and New Home Demand Projections,” by George S. Masnick, Daniel McCue, and Eric S. Belsky can be found on the webpage of the Joint Center for Housing Studies at Harvard University at: http://www.jchs.harvard.edu/publications/markets/w10-9_ masnick_mccue_belsky.pdf