Economic variables strongly affect both the demand for and the production of housing. Housing construction coincides with the business cycle. During times of economic growth the housing industry often booms, and during a recession, it can turn down precipitously. Table 1 shows the close connection between GNP and housing starts from 1964 to 1984.

Demographers are also interested in housing. They believe that population factors are major determinants of the long-run demand for housing. This report will focus on three demographic factors that impact housing demand: (1) Population size, (2) The rate of household formation, and (3) The configuration of households. By understanding these factors and the role they have played in the demand for housing in the past, one can project demographic trends into the future and then make statements about the future of housing on the national level and in Central Wisconsin.

 

TABLE 1
PRIVATE HOUSING
STARTS AND NATIONAL GROSS PRODUCT: 1964-1984
	Total Private Housing	Gross National
	Starts Number	Product (Constant
Year	(thousands)	1972 dollars) (billions)
1964	1529	876
1965	1473	929
1966	1165	985
1967	1292	1011
1968	1508	1058
1969	1467	1088
1970	1434	1086
1971	2052	1122
1972	2356	1186
1973	2045	1255
1974	1338	1248
1975	1160	1234
1976	1538	1300
1977	1987	1370
1978	2020	1439
1979	1745	1479
1980	1292	1475
1981	1084	1514
1982	1062	1485
1983	1703	1535
1984	1750	1639

Sources: Bureau of the Census

 

Population Size

The population of the United States has grown from 152 million in 1952 to about 247 million today. Birth rates were high in the 1950s with the baby boom peaking in 1957. Consequently, the highest rates of population growth in percentage terms in the postwar era were in the 1950s. In that decade, the population grew by 18.6 percent. During the 1960s, the U.S. population grew by another 13.5 percent, and in the 1970s it grew by 11.0 percent. In part because of the high birth rates in the 1950s and 1960s, our nation witnessed a tremendous demand for suburban housing. It is important to realize that even though the rates of growth have been lower in recent decades than during the 1950s, the base population has grown so large that we are still adding 2 million people to the population each year.

Household Formation

For housing, more important than growth of the population is the age structure. Age structure refers to the number of people of each age. Age structure is important because it influences the second demographic factor related to housing demand: household formation. Demographers have identified age patterns. that are closely related to household formation and housing demand. Table 2 shows the typical progression of household life cycle stages. Single first-time householders typically live in low rent apartments. Advancing singles are somewhat older and have higher incomes. These people are in the market for higher rent apartments and modestly priced condominiums. Young married people typically live in rental apartments until they are able to afford to purchase a starter home. In large metropolitan areas, that starter home often is a condominium or townhouse. Compact families are those with at most one or two young children. They usually occupy starter homes. Expanding families usually prefer traditional detached single family homes. Established families are those whose breadwinners are progressing in their careers and often have somewhat older children. They are the families who most often trade up to prestige homes. The empty nest stage refers to families whose children have grown and are off to college, married, or otherwise on their own. To the extent that such families are looking for new housing, they are the largest market for maintenance-free condominiums. Retired people tend to remain in their own homes, but those who do move represent the market for adult only condominiums and retirement communities. Most widows and widowers live independently, but since about 5 percent of the older population is institutionalized, these people are the most likely residents of nursing homes.

 

TABLE 2
HOUSEHOLD LIFE CYCLE STAGES

 Typical Contemporary Progression

1. Single "first timers"

2. Advancing singles

3. Young marrieds

4. Compact family

5. Expanding family

6. Established family and pre-empty nesthood

7. Empty nesthood

8. Active retired and fully retired

9. Widows or widowers

Configuration of Households

During the 1970s and 1980s, the United States witnessed a revolution in household living arrangements. There was an explosion in alternative household situations. Table 3 lists several alternative household situations. In the past thirty years Americans have married later, and divorced with greater frequency. Consequently, there was a dramatic increase in the number of households and a shrinkage in the number of persons living in each one. In 1940, the average number of persons per household was 3.67. In 1985, it was only 2.67. Well over half (54.9 percent) of the nation's households now consist of only one or two persons. The classic 1950s image of the American family consisting of mom, dad, and two or three children is no longer the most common living arrangement. Now households of four or more persons take up barely a quarter of the nation's dwellings. In their place is a variety of atypical families such as single mothers with children and nonfamily households of people living alone or in groups of unrelated people. These different kinds of households have diversified the kinds of housing in demand. For example, female-headed households with children typically rent, and young upscale singles often purchase condominiums.

TABLE 3
HOUSEHOLD LIFE CYCLE STAGES

Alternative Household Situations

Permanent singles and resingled

Mingles (unrelated adults sharing housing accommodations)

Never-nesters

Single-parent families

 

Future of Housing Demand

What are we likely to see in terms of housing demand in the future? One way to analyze this is to examine the recent past. In the last 20 years the baby boom generation (those born between 1946 and 1964) have had the greatest impact on housing demand. Between 1970 and 1980, the number of people aged 25 to 34 increased 48 percent and the number of 18 to 24 year olds increased 23 percent. During this same period of time, the total population increased only 11 percent. In addition to their large numbers, the baby boomers married late and had high rates of divorce. In these ways, the baby boomers were responsible in large part for the explosion in the number of households that occurred in the 1970s.

As a result of the large number of 18 to 24 year olds becoming first time householders and the 25 to 34 year olds competing to purchase their first homes, housing costs rose to unprecedented levels. What will come next? Following behind the baby boom is the baby bust generation. These are people born between 1964 and 1971. As their name implies they are a smaller cohort than their predecessors. These people are now aged 18-24 and have reached the stage of first householdership. Already we are seeing the shrinkage in housing demand as the number of 18 to 24 year olds declines. Nationally, we are experiencing a 15 percent decline in 18 to 24 year olds between 1983 and 1990, and it is expected to shrink by another 12 percent from 1990 to 1995 (Table 4). Table 5, for Central Wisconsin, also shows a 17 percent decline in 20 to 24 year olds between 1985 and 1990, and an additional 10 percent decline for this age group between 1990 and 1995. Tables 6A, 613, and 6C show similar patterns for Portage, Marathon, and Wood counties. (Marathon County, however, shows a smaller decline than the other two Central Wisconsin counties for 20 to 24 year olds through 1995.) These demographic changes should be considered by builders of rental housing because people this age are the primary users of modestly priced rental housing.

 

TABLE 4
U.S. POPULATION CHANGE

BY AGE 1970-1995 

	% Change	% Change	% Change	% Change
Age	1970-1980	1980-1983	1983-1990	1990-1995
Total	11.0	3.0	6.5	4.0
18-24	22.8	- 0.7	-14.5	-12.0
25-34	48.4	7.3	7.9	-6.9
35-44	11.8	13.9	28.3	11.0
45-54	--2.5	- 1.7	13.6	23.6

TABLE 5
CENTRAL WISCONSIN

 Population Change by Age Group
(Percent)

Age	1980-1985	1985-1990	1990-1995	1995-2000
15-19	-18.1	-8.2	+5.0	+2.8
20-24	-1.1	-17.1	-10.2	+2.8
25-29	11.8	-.5	-16.8	-9.9
30-34	16.4	11.7	.1	-16.6
35-39	25.1	17.4	12.1	.4
40-44	17.2	26.5	17.7	12.7
45-49	6.8	18.5	27.1	17.9
All Age Groups	3.0	3.4	3.1	2.4

Source: Wisconsin Department of Administration

 

TABLE 6A
PORTAGE COUNTY

 Population Change by Age Group
(Percent)

Age 1980-1985 1985-1990 1990-1995 1995-2000 15-19 -18.0 -.2 7.2 6.4 20-24 -2.0 -17.9 -11.2 1.0 25-29 34.6 -3.7 -16.7 -10.5 30-34 8.6 32.4 -2.3 -16.1 35-39 37.9 7.0 34.4 -1.5 40-44 25.7 36.0 8.6 35.4 45-49 15.1 23.8 38.1 9.4 All Age Groups 7.0 4.8 5.0 4.9

 

TABLE 6B
MARATHON COUNTY

 Population Change by Age Group
(Percent)

Age	1980-1985	1985-1990	1990-1995	1995-2000
15-19	-19.0	-8.6	4.2	-1.6
20-24	-1.8	-1.7	-6.9	-3.8
25-29	.6	.9	-1.7	-6.9
30-34	19.3	3.2	.9	-16.5
35-39	19.0	22.7	3.2	1.0
40-44	1.7	22.4	22.6	3.3
45-49	2.8	20.7	22.4	22.8
All Age Groups	.5	2.7	2.2	1.4

 

TABLE 6B
WOOD COUNTY

 Population Change by Age Group
(Percent)

Age	1980-1985	1985-1990	1990-1995	1995-2000
15-19	-16.9	-15.5	3.8	5.6
20-24	.9	-17.0	-13.9	3.6
25-29	10.5	.9	-17.0	-13.8
30-34	17.8	10.3	.9	-17.0
35-39	25.8	17.7	10.2	1.1
40-44	11.5	25.7	17.6	10.3
45-49	1.3	11.4	25.7	17.8
All Age Groups	3.7	3.3	2.7	1.7