Household Formation on the Rise—For a Surprising Reason

In the "turnaround the housing market has been looking for," according to Jed Kolko, the U.S. Census has reported an increase in household formation for several quarters.

Before taking a deeper dive into the Census data, Kolko explains the significance of household formation: "the job market has improved, and household formation is on the rise, approaching or exceeding historical averages. As new households form, they fill up vacant homes, pushing up prices and rents. In response, homebuilders build more, which in turn adds to overall economic activity."

But that's not the kicker of the data, according to Kolko. The demographic trend driving this shift is not, as one might expect, the Millennial generation finally moving out of their parents' homes. In fact, explains Kolko, "the share of young adults living in their parents’ homes continues to rise, as the Census Bureau and the Pew Research Center have reported."

Kolko goes on to lead an exploration of how to solve the puzzle of contemporary household formation, including explanations of the critical statistics of "headship rate" and adult population growth.

The answer to the puzzle: that older adults are driving household formation, because the U.S. population is aging. In addition to making that argument and backing it up with data, Kolko also provides thorough access to the process by which he reached that conclusion.