Housing Is Getting Hammered By Shifts In Living Patterns

To the many woes besetting the beleaguered housing industry, you can add a sharp drop in the rate of increase in the number of households. The decline is particularly worrisome to housing-market observers because it occurred well before the current recession began.

Although U. S. households have increased in every year since 1900, significant slowdowns in growth have almost invariably coincided with economic downturns. Yet households in the year ended in March, 1990 (the latest annual data available), increased by only 517,000, or 0.56%, at a time when the jobless rate hit its lowest level since 1973. That's the third-smallest annual percentage gain in households in the past 90 years, eclipsed only by the Depression- and recession-induced lows recorded in early 1932 and 1983.

What lies behind this development? Statistics on living arrangements indicate that people in 1989-90 were "doubling up" in various ways. The percentage of married couples without their own households, for example, was the highest in 25 years. There were more subfamilies and unrelated individuals living in households headed by others. And there were fewer young people living alone and more living with siblings or other relatives. "That's the sort of behavior one would expect in response to economic adversity," says economist Michael Carliner of the National Association of Home Builders.

Economist Richard F. Hokenson of Donaldson, Lufkin & Jenrette Securities Corp. points to the trend away from marriage and other behavioral shifts. The share of 25-to-34-year-olds living with parents is now 11.3% compared with 8% in 1980. And adult men of all ages seem to find it difficult to set up independent living quarters: More than 13% now live in households headed by others.

With net household formation already so weak before the current economic contraction began, Hokenson thinks that there's a good chance the number of households could actually decline this year for the first time in history. That would not only keep housing construction in the cellar for some time but also severely depress real spending on housing services and operations. The upshot might well be a longer and more severe recession than experts are expecting.

Carliner speculates that the current weakness in household growth "creates a potential for a burst of household formations as the economy turns up." But Hokenson is dubious. A continuing slowdown in the growth of the adult population, combined with the rise in households with dependent males, he says, "imply that the recovery in household formations will be modest."