Trends: Fewer New Families
Dramatic pattern changes in household formations, the major component of housing construction, are spawning wide and lasting effects throughout the nation’s housing industry and in family life styles.
A steady lessening in the formation of new households, principally because of a waning baby boom and delayed marriages, has been gradually transforming the housing market.
Keying a national housing study on those two major factors, a U.S. Housing Markets report by the Dallas-based mortgage banking firm of Lomas & Nettleton, says household formations reached their peak in the 1970s and have been shrinking ever since.
Scars of Recession
In 1982, in the midst of the recession, when interest rates were at record highs, the number of formations dropped to 545,000. Between 1970 and 1980, formations averaged 1.7 million yearly. The scars of the recession have never healed, and those numbers have never been recaptured.
The report foresees a drop to an average of 1.3 million formations over the rest of this decade and down to 1 million by the year 2000.
The consistent decline through the recession years and in the so-called recovery period does not bode well for the immediate future, according to George Masnick, a demographer with the MIT-Harvard Joint Center for Housing Studies.
The downtrend in household formations is not temporary, he feels, because a preponderance of today’s young people--those who create new households--aren’t moving out of the family nest until they are ready for marriage and parenthood.
“And they marry later and later. Since 1975, the percentage of women aged 20-24 who have never married has risen 40% to 57%. The percentage among those 25-29 has doubled from 12% to 24%,” he said. “The stay-homes will become prospects for the housing market at later ages.”
This combination of the “busting out” or bottoming of recent baby boom years and the resulting smaller segment of young adults, along with their changed living patterns, is cited as the dramatic force facing the housing industry. The sharpest comparison is in the age groups where most new households are formed--those under 30 years.
In the decade of the ‘70s, the population between 20 and 30 grew more than 1 million a year; today, it is declining half a million annually, and the 20-29 headship rate is the lowest since the 1960s.
Census Bureau data shows that California topped all states in housing formations for the 4 years ending July 1, 1984, with 872,000. Texas had 696,000 and Florida had 561,000. Those Sun Belt states accounted for almost 40% of the nation’s household formations during that period.
Replacement Housing
The tremendous sociological changes in family life experienced in the post-World War II era had its great, historic impact on housing as the new generations “split” from home and created their own households of the single or mingles variety. One-person households during the 1970s increased by an average of 750,000 yearly--more than double the rate of the 1960s, creating a whole new housing market which grew to represent 45% of all household formations.
This major reversal in the housing picture also includes a secondary issue--that of replacement housing. This includes homes and apartments lost through demolition, disaster or conversion to other uses. Consistently, for the past 15 years, such losses have amounted to about 300,000 units annually. But the report projects increases to 350,000 or 400,000 a year in the 1990s.
You’d never guess it from listening to winners of the California lottery, but traditional motivation for buying a home, the report argues, is weakening. The investment attraction of a home, such as in the late l970s’ housing boom, has virtually vanished, leaving only modest annual appreciation of properties.
Renting or Owning
Also, affordability and the drop in appreciation have much to do in the choice between owning and renting. The report points to maximum appreciation and affordability between 1975 and 1980 resulting in owner households being nine times as great as the increase in renter households. Between 1980 and 1984, when the factors were reversed, all but 35,000 of a 4.5-million increase in households were renters.
The report finds that more than half of the household formations this year and next and nearly half for several years to come, will be in the 35-44 age group, “the most disposed to home purchase.” The steepest, earliest declines are predicted to be among those under 30 whose households are two and three times as likely to be rentals.
The implications for the housing industry’s future are for tougher competition for shares of a smaller market, as the reduction in household formations continue.
For the consumer, as is already becoming evident, there will be a greater degree of selectivity between wanting to buy or choosing to rent.
