Ignite FB Tracking PixelIs Household Formation Strong or Weak? - Dave Hiller
Core, Realtors

Is Household Formation Strong or Weak?

by Dave Hiller 10/14/2019

Oregon Household Data

Source:Oregon Office of Economic Analysis

Here is information on Oregon's population growth, increasing household formations and the impacts of economic growth, housing availability and affordability.  Our state continues to attract an inward migration. That comes with both positive and negative impacts.

 

Overall the number of households in the state continues to increase. This is no surprise given that we are a magnet state. In good times and bad people pack up and move to this part of the world, especially when job opportunities are plentiful. Given migration flows in recent years have been about as large as we have seen in absolute terms (not true in percentage terms), it makes sense that the number of new households are increasing quickly as well.

The latest Census data shows Oregon added just over 36,000 new households last year, the highest we have seen in the ACS data. These increases are now catching up to the household formation rates seen in the more timely, but more volatile household survey (CPS). The growing gap between the two different data sets was an issue to watch, however that gap is closing some and does not represent a true problem.

A few things. One, people follow the jobs and as employment growth slows, so too will migration. This is already happening and the most recent CPS data shows household formation across the state is slowing some as a result. Two, while Census pegs the number of new households at 36,000 last year, we know we built just under 20,000 new housing units. This continues to place upward pressure on housing costs overall. Three, see our previous post on the housing starts outlook for more on the better balance our office expects in the coming few years.

While the total number of new households in recent years has been about as big as we have seen, it doesn’t necessarily mean that household formation is strong. In fact, if we dig into the types of households and who is forming them, we see that within the existing population, household formation is actually pretty weak.

Specifically, the headship rate among 20- and 30-somethings continues to drop. Young adults are living at home longer, or living with roommates to a larger degree than a decade ago, let alone two decades ago. Within the Portland region this decline means there are nearly 28,000 fewer households today among the 25-44 year age group than there would be if household formation rates were the same as back in the mid-2000s. Across all age groups, the decline in household formation rates in the Portland region results in 36,000 fewer households on net. This is equal to 3 years of new construction, which is a massive number.

Headship rates

Now, this issue isn’t new nor is it specific to Portland or any other particular region. Len Kiefer, deputy chief economist at Freddie Mac — a great follow on Twitter BTW — put together a report last year on the factors behind this decline in household formation. In short, it’s a number of things like higher housing costs and worse economic outcomes for Millennials who graduated into the Great Recession. However other shifts like the delay in marriage and having kids also play a role as well. And not all factors result in lower rates. For example, higher levels of educational attainment actually point toward more households than would otherwise be expected, as such individuals have higher employment rates and incomes and the like.

House Hold Formations

Bottom Line: The number of households in Oregon continues to increase. These gains are entirely driven by population growth and the age structure. Within age groups, household formation rates are quite weak for a variety of reasons, including housing costs and economic outcomes. Now, given the strong multifamily construction in recent years, and concerns about overbuilding, these lower rates of household formation among 20- and 30-somethings may actually represent a form of latent demand. As affordability improves via both slower rent increases and rising incomes, a revival of or even just a moderation in the decline in household formation rates could help with both near-term and longer-term absorption of the new apartments. To the extent this occurs, the market may find a new equilibrium sooner rather than later. And it would put upward pressure on the need for higher levels of construction activity to meet the demands of the growing population.

Is Household Formation Strong or Weak? Posted by Josh Lehner - Oregon Office of Economic Analysis October 10, 2019

About the Author
Author

Dave Hiller

SRS, GRI, SRES®

HOWNW.com Certified Specialist

Core, REALTORS®

License No. 201226626

Oregon Licensed Broker

Hi, I'm Dave Hiller and I'd love to assist you. Whether you're in the research phase at the beginning of your real estate search or you know exactly what you're looking for, you'll benefit from having a real estate professional by your side. I'd be honored to put my real estate experience to work for you.