Eyes wide open.



Yesterday’s New York Times article discusses current trends in the housing market, with a highlight on the market in our very own Roanoke, Va. Growth in housing is still considered to be sluggish, by historical standards. One possible explanation is that the economy stills needs to “work off” the surplus of homes built during the bubble. But if this were the case, the article argues, the glut in housing would have been worked off by mid-2010. The main challenge is lack of demand.

The article cites household formation as the key driver of demand for homes. It is pretty intuitive; the more households there are, the more homes are needed. “When a young adult moves away from home and gets her own apartment, a household is formed; when a retiree moves out of his own place and into the apartment above an adult child’s garage, one ceases to exist. The number of American households is in constant motion; it is determined by millions of individual decisions that Americans make about their living situations.”

I began to wonder about my own living situation. I currently rent a home with two other UMW students. Are we considered one household, or three separate households? Or would we be filed under our parents’ households? To shed some light on this, I researched a little into housing formation and classification. I think how we classify something is important. It frames how we understand, approach and analyze an issue.

Household means a group of people living together. Or, more technically, occupied housing units. It can be six roommates, a four-person nuclear family plus a grandmother in the guest room or a a young couple of two. Formations are defined as the change in the change in the number of households. More formations is good news. It suggests more people getting jobs, getting apartments, getting married, having kids and spending more money to furnish their new households.

This recovery, however, has been a story of few jobs, crowded apartments, low marriage-rates and low birthrates. Unemployment among Millennials is about twice the national average, and real wages for young people have declined outright since 2007. As a result, one in three older teens and twentysomethings reported moving back in with their parents. That means they weren’t starting new households. They weren’t paying rent, taking out mortgages, buying furniture, paying separate utility bills–all of which caused the housing activity to become a smaller and smaller share of GDP.

Housing formation is an interesting, under-talked about economic variable. One that I’m sure we’ll be hearing more of soon.

posted under Econ488

You must be logged in to post a comment.