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Housing

Household formation among young adults

A guest post from Reamonn Lydon and Apostolos Fasianos of the Irish Economic Analysis division here at the Bank.

The overall population increased by 4% between 2008 and 2016. At the same time, the number of young adults aged between 20 and 34 fell by a quarter– from 1.15 million to 860 thousand (see Table 1. See also the excellent study by Glynn, Kelly and MacEinrí (2015) on migration patterns for this group).

Table 1 CSO population estimates (Table PEA01)
 (`000s) 2008 2016 % change
Age <20 1209 1327.4 9.8%
20-24 373.6 226.8 -39.3%
25-34 777.8 633.6 -18.5%
35-44 662.2 733.2 10.7%
45-64 978.9 1127.2 15.1%
65+ 483.7 625.5 29.3%
4485.2 4673.7 4.2%

The large decline in the 20-34 population means that housing demand will be lower than the past.  However, there have also been significant changes in the household formation patterns of this group which are relevant when it comes to thinking about housing demand in the future.  As the figure below shows, just before the property crash just over 30% of young adults lived with parents, but by 2016 this had risen 37%.  Taking into account the population drop, this is around an additional 25,000 young adults versus the situation in 2006, and just under 320,000 in total living with parents in 2016.

F1Census data for 2016 is not yet available to calculate the latest figures, so we have drawn on the QNHS and Household Finance and Consumption Survey (HFCS, 2013) to try and complete the picture to 2016.  The HFCS is particularly useful as it allows us compare Ireland with other countries (Figure 2).  Ireland looks similar to both the EU and US (although the US data is for 18-34 year olds living with relatives, not just parents), but is somewhat higher than the UK. We know, however, that UK third level students are more likely than their Irish counterparts to live away from home.  Southern European countries, with relatively high rates of youth unemployment – such as Spain, Portugal and Italy tend to have a higher proportion of young adults living with their parents.

rea2

What do these figures mean for housing demand?

The answer depends on the extent to which you believe the shift towards more young adults living at home is a cyclical or a structural change. Certainly, there is a slow-moving cyclical part to it – the proportion rose as the employment prospects for this group worsened and young people stayed on in education (Conefrey, 2011).  The CSO also reported a sharp drop in the proportion of 19-24 year-olds in shared accommodation (i.e. renting), from 22 to 18% between 2006 and 2011.  So there may be a jump in demand in the short term, because not only do the delayed entrants want to enter the market after a (cyclical) delay, but those who are younger will now start forming households at a younger age.  There is already some evidence of this in the 2016 QNHS, which shows the percentage of 20-24 year olds living at home falling for the first time in almost 10 years, from 70 to 68%.

However, there might also be structural changes to consider. For example, if the easy credit of the bubble years meant that buyers got on the housing ladder at a younger age than previously, and this has since been reversed, then the ‘pent-up’ demand might not be so large.  We know that the average age of FTBs has risen in recent years, having fallen during the boom.  In this case, young adults could continue to form households at a rate similar to what we are now seeing.

In all likelihood, the shifts we have witnessed are a mix of cyclical and structural changes. However, how much is cyclical does matter. As Table 1 showed, there were just over 860,000 20-34 year-olds in 2016. Ignoring immigration flows which could increase the size of this age cohort further, each 1% fall in the proportion living at home means an additional 8,600 individuals looking to rent or buy. This is a large figure in the context of current estimates for annual housing demand, which range from 20,000 and 40,000 units.