The U.S. will add 25 million households by 2035, which will likely fuel growth in the residential construction industry, according to a new working paper from The Harvard Joint Center for Housing Studies.
Millennials and minorities are expected to drive growth in the U.S. household count in the next few decades. Individuals under the age of 30 in 2015 are expected to net 23 million households from 2015 to 2025. Overall, 72% of the projected household growth is expected to be non-white households.
- The increase in household formation will put added pressure on the residential construction industry. The baseline demand for new housing from 2015 to 2025 will span 16 to 18.2 million units, the JCHS reported.
The forecasted growth in household formation is expected to supply the demand needed to continue to support the housing market’s recovery from the recession. However, the additional demand could put pressure on an already tight supply pipeline that has helped to propel prices higher in recent years.
Single-family housing starts dropped 4.1% from October to November to a seasonally adjusted annual rate of 863,000 but were 5.3% ahead of a year ago, according to the latest Commerce Department figures. Meanwhile, single-family building permit authorizations were up 1.4% year-over-year in November.
The JCHS report adds weight to the belief that a significant portion of the growth in housing demand will be driven by millennials as they shift their focus to homeownership in response to surging rents, an easing in lending standards and an increasing desire to build equity.
While first-time buyers, a group composed primarily of millennials, accounts for roughly 33% of home sales today, down from their pre-recession share of 40% but growing recently, industry watchers are waiting to see whether a recent rise in mortgage interest rates will push them away. Some builders are betting that new construction targeting millennials will allay high prices caused by tight supply and encourage them to purchase homes.
For more housing news, sign up for our daily residential construction newsletter.