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Housing: Impact of Changes in Household Size

By Anonymous

If we look at a long term graph of housing starts, we notice that there were more starts at the peak in the '70s than during the recent housing bubble. If we plotted housing starts per capita, or per total households, the surge in housing starts during the last decade would not look extraordinary at all (ht Dave).

But it was extraordinary ...

Click on graph for larger image in new window.

First, here is the long term graph of both total housing starts and single unit starts. Obviously there were many more multi-unit housing starts in the '70s - and that is a clue.

The key is household formation.

Household formation is a function of changes in population, and also of changes in household size. During the '70s, the baby boomers started moving out of their parents' homes, and there was a dramatic decrease in the number of persons per household. And that lead to a huge demand for apartments (the surge in total starts).

The second graph shows the persons per household since 1947. Persons per household has been declining for over a century, but there was a fairly sharp decline starting in the late '60s and all through the '70s.

More recently persons per household had been fairly flat. And there has been some recent research that suggests the household formation was lower, and therefore persons per household might even be higher, than the Census Bureau estimates. See from Amy Hoak at MarketWatch: Number of U.S. households falls by 1.2 million

Caveat: All of this data is rough, and it is difficult to get an accurate count of the housing stock.

Using the Census Bureau data we can calculate the impact the number of households needed because of 1) population growth, and 2) changes in household size:

Households Added due to Population Growth and Changes in Household Size
Decade	Due to Population Growth (millions)	Due to Change in Household Size (millions)	Persons per household, ending
50s	8.4	1.0	3.34
60s	8.0	2.5	3.19
70s	8.0	9.4	2.78
80s	8.5	4.9	2.62
90s	12.2	0.4	2.61
00s	11.0	1.7	2.57
Source: Persons per Household, Census Bureau XLS file

Because of the changes in household size, the U.S. needed far more additional housing units in the '70s and '80s than in the '90s and '00s. If we could normalize the housing start chart by household formation, we would see that the last decade was indeed extraordinary!

Full post as published by Calculated Risk on April 18, 2010 (boomark / email).