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What happens to household formation in a recession?

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  • Lee, Kwan Ok
  • Painter, Gary

Abstract

While many studies have investigated the determinants of housing demand, very few studies have focused on how economic conditions affect the formation of potential households directly. Potential households may choose to delay entry into the housing market by remaining with one’s parents during times of economic hardship or by combining with other persons to share housing costs. Using a variety of modeling approaches, we find that both the increase 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 1–9% 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% points lower.

Suggested Citation

  • Lee, Kwan Ok & Painter, Gary, 2013. "What happens to household formation in a recession?," Journal of Urban Economics, Elsevier, vol. 76(C), pages 93-109.
  • Handle: RePEc:eee:juecon:v:76:y:2013:i:c:p:93-109
    DOI: 10.1016/j.jue.2013.03.004
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    Cited by:

    1. Marianne Bitler & Hilary Hoynes, 2015. "Living Arrangements, Doubling Up, and the Great Recession: Was This Time Different?," American Economic Review, American Economic Association, vol. 105(5), pages 166-170, May.
    2. Robert Collinson & Ingrid Gould Ellen & Jens Ludwig, 2015. "Low-Income Housing Policy," NBER Chapters,in: Economics of Means-Tested Transfer Programs in the United States, volume 2, pages 59-126 National Bureau of Economic Research, Inc.
    3. Robert Collinson & Ingrid Gould Ellen & Jens Ludwig, 2015. "Low-Income Housing Policy," NBER Working Papers 21071, National Bureau of Economic Research, Inc.
    4. Adamopoulou, Effrosyni & Kaya, Ezgi, 2013. "Young adults living with their parents and the influence of peers," UC3M Working papers. Economics we1310, Universidad Carlos III de Madrid. Departamento de Economía.
    5. Jung Choi & Gary Painter, 2015. "Housing Formation and Unemployment Rates: Evidence from 1975–2011," The Journal of Real Estate Finance and Economics, Springer, vol. 50(4), pages 549-566, May.
    6. Blumenberg, Evelyn & Ralph, Kelcie & Smart, Michael & Taylor, Brian D., 2016. "Who knows about kids these days? Analyzing the determinants of youth and adult mobility in the U.S. between 1990 and 2009," Transportation Research Part A: Policy and Practice, Elsevier, vol. 93(C), pages 39-54.
    7. Kseniya Abanokova & Michael Lokshin, 2015. "Changes in household composition as a shock-mitigating strategy," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 23(2), pages 371-388, April.
    8. Arnstein Aassve & Elena Cottini & Agnese Vitali, 2013. "Youth prospects in a time of economic recession," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 29(36), pages 949-962, November.
    9. William H. Rogers & Anne E. Winkler, 2014. "How Did the Housing and Labor Market Crises Affect Young Adults' Living Arrangements?," Working Papers 1005, University of Missouri-St. Louis, Department of Economics.
    10. Stuart A. Gabriel & Stuart S. Rosenthal, 2015. "The Boom, the Bust and the Future of Homeownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(2), pages 334-374, June.
    11. Erin Hye-Won Kim, 2015. "Public transfers and living alone among the elderly," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 32(50), pages 1383-1408, June.
    12. Gatskova, Kseniia & Kozlov, Vladimir, 2018. "Doubling Up or Moving Out? The Effect of International Labor Migration on Household Size," CEI Working Paper Series 2017-6, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    13. Courtin, Emilie & Avendano, Mauricio, 2016. "Under one roof: The effect of co-residing with adult children on depression in later life," Social Science & Medicine, Elsevier, vol. 168(C), pages 140-149.
    14. Dettling, Lisa J. & Hsu, Joanne W., 2014. "Returning to the Nest: Debt and Parental Co-residence Among Young Adults," Finance and Economics Discussion Series 2014-80, Board of Governors of the Federal Reserve System (U.S.).
    15. Namkee Ahn & Virginia Sánchez-Marcos, 2017. "Emancipation under the great recession in Spain," Review of Economics of the Household, Springer, vol. 15(2), pages 477-495, June.
    16. Byrne, David & Duffy, David & FitzGerald, John, 2014. "Household Formation and Tenure Choice: Did the great Irish housing bust alter consumer behaviour?," Papers WP487, Economic and Social Research Institute (ESRI).
    17. repec:kap:poprpr:v:36:y:2017:i:4:d:10.1007_s11113-017-9429-1 is not listed on IDEAS
    18. Christopoulou, Rebekka & Pantalidou, Maria, 2017. "The parental home as labor market insurance for young Greeks during the crisis," GLO Discussion Paper Series 158, Global Labor Organization (GLO).
    19. Rogers, William H. & Winkler, Anne E., 2014. "How Did the Housing and Labor Market Crises Affect Young Adults' Living Arrangements?," IZA Discussion Papers 8568, Institute for the Study of Labor (IZA).
    20. Larrimore, Jeff & Schuetz, Jenny & Dodini, Samuel, 2016. "What are the Perceived Barriers to Homeownership for Young Adults?," Finance and Economics Discussion Series 2016-021, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

    Housing demand; Business cycle; Household formation;

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • D10 - Microeconomics - - Household Behavior - - - General

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