Households & New Permits
Why is this important?
Household formation indicates the number of new households each year. It is an important indicator of economic strength since it indicates that people are moving out of family or roommate living situations to form their own households. Household formation is therefore a sign of economic confidence or security; people generally do not move out on their own unless they feel financially comfortable and confident in stable income [i]. Conversely, periods of high unemployment or economic decline have very little household formation. Household formation can also be attributed to population growth and declining household sizes as the elderly often live alone. Generally, household formation boosts housing demand and therefore construction [ii].
The housing market is generally seen as one of the first economic sectors to rise or fall when economic conditions improve or degrade, and housing permits are early indicators of activity in the housing market. Pent up demand for housing units from increased household formation propels economic growth, but may also drive increases in housing prices with constrained supply and high demand until permitted units are completed and supply increases [iii].
[i] Lehner, Josh. “Oregon Household Formation and Housing Outlook.” Oregon Office of Economic Analysis. 20 June 2017. Web. 28 June 2017. <https://oregoneconomicanalysis.com/2017/06/20/oregon-household-formation-and-housing-outlook/>.
[ii] Kolko, Jed. “Who is Actually Forming New Households?” Terner Center for Housing Innovation. 17 August 2015. Web. 28 June 2017. <https://ternercenter.berkeley.edu/blog/new-households>.
[iii] “Building Permits: Useful Indicator or Meaningless Information?” InContext. (2001). http://www.incontext.indiana.edu/2001/april01/details.asp