Housing will recover on the other side of the currentslide because demand will be driven by the Echo Boom generation. In fact, over the next 20 years, the number of people in the primary household formation and home buying ages will exceed 80 million, which is larger than the Baby Boomer generation.
However, there are a number of factors that will determine the final demand for additional homes. Aside from the temporary economic issues that have delayed household formations, the prime drivers behind how many households form from the base population include immigration, headship rates, and social trends such as divorce, remarriage, and presence of children.
The rising share of the foreign-born population in the U.S. will have a dramatic impact on housing demand. Past and future immigrant groups are large in number but they form larger, multigenerational households. These competing forces will both add to and subtract from the number of households formed by the underlying and expected population. The component of total population arriving from and returning to other countries is the most fluid and most difficult to forecast. The economic slowdown reduced the incentive to move but likely only in the short run. A study from the Pew Research Center found that the recent decline in net immigration from Mexico (the country with the largest number of resident immigrants) is due to a decline in new entrants rather than an increase in those leaving.
The foreign-born population accounts for 13 percent of the current population and 14 percent of the households, but it grew twice as fast as total population in the past five years. Census Bureau projections for the two largest foreign-born segments foresee continued growth: The Hispanic population will double and the Asian population will nearly double by mid-century. According to the Joint Center for Housing Studies, the number of Hispanic households will increase between 420,000 and 500,000 per year, and the number of Asian and races other than Black households will increase by between 240,000 and 322,000 per year over the next 10 years. These two groups will account for more than half the increase in households and that contribution will increase beyond 2020.
Household size fell dramatically as Baby Boomers moved out of their parents’ homes, divorce without remarriage increased, and older people chose to live alone. That movement also increased headship rates. However, that trend slowed in the ’80s and has changed only modestly since then. Average household size was 3.2 people in 1970, 2.9 in 1980, and 2.6 in 2008. Several factors are likely to reduce headship rates further and reduce the impact of Echo Boomers on total household growth.
As the economy has weakened, job opportunities have disappeared, and more education is seen as critical to landing a job. Members of the Echo Boom generation are remaining in, returning to, or beginning college or trade courses. Schooling means staying at home or living with roommates. In addition, the Echo Boom generation has fewer siblings than their parents had, and they live in larger homes, leaving them with less incentive to move out on their own. Echo Boomers are also delaying marriage, contributing to lower headship rates.
The increase in ethnic and immigrant groups with larger families will lift the growth in households with children, but from a low of about 6 percent of all households to 15 percent in the next 15 years. The largest family-type contributor to household growth will be persons living alone, which will grow from one-third of all households to 40 percent.
The large Echo Boom generation, even with some delay, and the growing impact of immigration will boost housing demand and will account for most of the expected 1.2 to 1.5 million per year additional households over the next 15 years. Total housing production will have to be 1.6 to 1.9 million units to respond to increased households, replacement and second-home demand, and additional vacancies.