During the initial years of the housing downturn, optimists sometimes offered the following argument: “Everyone has to live somewhere. If a family loses their home to foreclosure, they will become renters. Their new residence might be smaller and less desirable than their former home, but from the perspective of housing units it’s a wash: their former home becomes vacant, but a previously empty rental becomes occupied. That should limit downward pressure on housing overall.”
That argument contains an element of truth: many foreclosed homeowners do indeed become renters (some even become homeowners again). But I’ve always wondered how many former homeowners follow a different path and instead move in with their parents, friends, or roommates, rather than getting their own place to live. Similarly, I’ve wondered how many young adults have delayed starting their own households and instead have stayed at home longer.
On Wednesday, the Mortgage Bankers Association released a study by Gary Painter (sponsored by the Research Institute for Housing America) that examines this question. His answer? America lost 1.2 million households from 2005 to 2008, despite ongoing population increases. Oh, and we likely lost even more households in 2009.
Needless to say, that retrenchment contributes to the ongoing overhang of vacant homes and rental properties.
As one piece of evidence about changes in household formation, Painter looked at the fraction of households that were overcrowded, which is defined as having more people than rooms. He found that overcrowding rates increased sharply from 2005 to 2008 (the most recent year for which he had data):
P.S. A related issue is the extent to which people have become homeless, rather than moving in with others. I didn’t find a clear answer in some quick searches, but the National Coalition for the Homeless has a useful discussion.