“Doubling up” has been a catch phrase among apartment professionals during the past two years of economic dislocation. And for good reason. After all, conventional wisdom says that during a recession, apartment residents move in with roommates or relatives rather than forming their own households in order to reduce their living expenses. There are numerous anecdotal reports that validate the doubling up phenomenon. Apartment search engine MyNewPlace.com reported that Internet searches for three-bedroom apartments overtook searches for one-bedroom units in the first quarter of 2009. Likewise, during the National Multi Housing Council’s (NMHC) recent Research Forum, one firm observed that in the first quarter of 2008, one-bedroom units outperformed two-bedroom units in all but one market. But recently, two-bedroom and three-bedroom apartments have been outperforming one-bedrooms and posting smaller rent declines.
Still, there have been skeptics to this doubling up theory. At the same NMHC Research Forum, another large owner reported that their “occupants-per-unit” has actually dropped from 1.86 to 1.63 since 2008, and vacancies have been more common in three-bedroom units than in one- and two-bedroom units.
Since there’s been little empirical evidence showing how household composition has changed nationally during this latest economic downturn, NMHC decided to turn to the Current Population Survey’s (CPS) Annual Social and Economic Supplement to explore the issue. The analysis yielded some interesting—and unexpected—findings.
Survey Says
The CPS, a monthly survey of about 50,000 households conducted by the Bureau of Labor Statistics and the Census Bureau, confirms that the Great Recession has indeed discouraged people from forming new households. Between 2008 and 2009, the overall growth rate of all households, both renter and owner, increased a mere 0.3 percent. That’s the lowest rate of household formation since the end of World War II. To put the numbers in perspective, from 1999 to 2008, the United States formed an average of 1.4 million households per year. From 2008 to 2009, households increased by only 386,000.
Additionally, the survey confirms that the low rate of household growth is due primarily to a drop off in single-person households. There were roughly half a million fewer single-person households in 2009 than in 2008. This decline may not seem large in the context of millions of households, but this is the first time single-person households have declined among all households in at least a decade. And this is the first such decline for single-person apartment households since 2005, when the housing bubble was nearing its peak. In fact, there were nearly 82,000 fewer single-person renters at the end of 2009 than there were in 2008. So, yes, the empirical data does indeed suggest that some level of doubling up is occurring.
Married Without Children
The data leaves us with a question: If the number of single-person households declined but the total number of overall households increased, what types of households grew? The industry generally assumes that roommates and relatives moving in together are driving this growth. But the data doesn’t bear this out.
The biggest recent driver of overall household growth has been married couples without children. For apartment renters, the increase in childless couples was particularly striking. They accounted for approximately half of the new renter households created from 2008 to 2009. By the end of 2009, there were nearly 111,000 more childless renter couples than the year before.
Why the bump in childless couples? According to sociologists, the increase most likely arises from two sources: First, happily married couples, both owners and renters, are postponing the decision to have children; second, unhappily married couples are postponing the decision to divorce. Both decisions are due to financial constraints.
The trend’s effect on the apartment industry requires some speculation. For example, married couples postponing divorce could be influencing the higher demand noted by some apartment firms for two-bedroom units as much as the traditional doubling up of roommates since, in better times, these dissatisfied couples would split and form two one-bedroom households.
Whatever the reasoning for doubling up, the trend is expected to subside with improving market conditions. At the most recent NMHC meeting (in May), participants reported that people are starting to gain confidence in the economy and form separate households. Panelists reported tightening occupancies for one-bedroom apartments. Interestingly, they point out that even though the unemployment rate for young people remains disproportionately high, their parents feel more confident today than they did a year ago about their own job security and are willing to pay to help their “boomerang” children rent an apartment.
That is welcome news, given the fact that Boston-based research firm CBRE Econometric Advisors estimates that in the last two years alone, we’ve lost half a million households under the age of 30. Since those are prime renter households, they will fill a substantial amount of pent-up demand as they return to the apartment market.
Richard Levy is the director of research at the National Multi Housing Council in Washington, D.C.