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gIn the years during and since the Financial Crisis and Great Recession, new household formation slowed dramatically as young adults remained living with parents and fewer people immigrated into the U.S. From 2008 through 2010, only 509,000 net new households were formed on average, but from 2011 on that figure increased to nearly 1.2 million households per year – the long-run average going back to 1990. The number of households headed by someone 50 or older has grown the fastest as the overall population ages, but the number of younger households has also been increasing in recent years. Most new households being formed are renter households.

Failure to Launch: The Outlook for Household Formation & Home Ownershipis the latest publication from The Demand Institute, a non-advocacy, non-profit think tank jointly operated by The Conference Board and Nielsen. According to the report, while household formation has improved, it could be even stronger were more young adults to move out of their parent’s home. In 2015, 31 percent of 18 to 34 year olds were living with their parents, up from 27 percent in the early 2000s. While young adults are staying with parents for longer, they eventually move out and form new households, especially once they reach their 30’s. The Demand Institute believes that net new household formation will continue to average about 1.2 million per year over the next decade.

“We expect new household formation to be robust over the next decade as the large millennial generation ages and forms new households of their own,” says Louise Keely, president of The Demand Institute. “The biggest gains in headship – the percent of people that head their own household – happen in one’s 20s and early 30s. More household formation usually coincides with increases in consumer spending on not just housing, but also on adjacent products and services including furniture, electronics, kitchen products, and groceries, to name just a few.”

As household formation strengthens and returns to previous levels, the report projects that demand for rental housing will continue to lead the way, and that the home ownership rate is unlikely to revert to previous highs seen during the housing boom in the early 2000s.

“Young adults do want to purchase homes, eventually, but they are staying in school longer and getting married later in life,” says Jeremy Burbank, a vice president at The Demand Institute who leads the American communities research program. “Incomes have been improving for millennials, but they are still earning less than young adults did in 2000 after we adjust for inflation. Higher home prices are making it more difficult for many to become homeowners.” Average home prices have now increased 31 percent since bottoming out in 2012, according to the latest S&P/Case-Shiller National Home Price Index.

A period of sustained rental demand will have important implications for the U.S. economy, just like the boom in home ownership did in the early 2000s. The rental market and multifamily construction continue to experience strong growth, while single-family home construction remains well-below historical levels. The implications also extend beyond the housing sector. “Renter household spending has grown more than four times faster than owner household spending since 2006 in the U.S. We have found that in many categories renters spend money differently and have different needs than homeowners,” says Burbank, “and we project that renters are a significant and growing market opportunity for consumer-facing companies.”

For more information, visit www.conference-board.org.

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