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What happens to household formation in a recession?

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  • Gary D. Painter
  • Kwan Ok Lee

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.

Suggested Citation

  • Gary D. Painter & Kwan Ok Lee, 2011. "What happens to household formation in a recession?," Working Paper 17, USC Lusk Center for Real Estate.
    • Handle: RePEc:luk:wpaper:17
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    More about this item

    Keywords

    housing; recession; economic conditions;
    All these keywords.

    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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