Year Published
2011
Abstract
The factors that influence housing demand have been well studied. Most studies focus on
a household's socioeconomic status, and lifecycle considerations. Other studies focus on
the external environment determined by housing market and economic conditions.
However, very few studies have focused on how economic conditions affect the lifecycle
of potential households directly. In particular, because the decision to form a household
is influenced by economic conditions, potential households may choose to delay entry
into the housing market, and remain living with one's parents during times of economic
hardship. Other households may choose to share housing costs by combining households.
We find that increases in the unemployment rate and the presence of recessions reduce
the rate of household formation. Simulations suggest that these declines are substantively
important. For example, in a recession, the likelihood that a young adult will form an
independent household falls by 1 to 3 percentage points depending on the age of the
person. By way of comparison, if an individual is unemployed, the likelihood of leaving
the parental home is up to 11 percentage points lower.
a household's socioeconomic status, and lifecycle considerations. Other studies focus on
the external environment determined by housing market and economic conditions.
However, very few studies have focused on how economic conditions affect the lifecycle
of potential households directly. In particular, because the decision to form a household
is influenced by economic conditions, potential households may choose to delay entry
into the housing market, and remain living with one's parents during times of economic
hardship. Other households may choose to share housing costs by combining households.
We find that increases in the unemployment rate and the presence of recessions reduce
the rate of household formation. Simulations suggest that these declines are substantively
important. For example, in a recession, the likelihood that a young adult will form an
independent household falls by 1 to 3 percentage points depending on the age of the
person. By way of comparison, if an individual is unemployed, the likelihood of leaving
the parental home is up to 11 percentage points lower.
Research Category