July 19th, 2011
In Business
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The falling demographics of household formation
(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com, or follow me on Twitter.
There is less marriage in a depression. I am not sure why this is a big deal. This has always been true of depressions. When the economy recovers, people will start families, just like always. Perhaps the point of the article is that we can not depend on household formation to pull the economy out of its slump. Household formation will remain depressed for as long as the economy remains depressed.
When I read the newspapers from the 1930s I’d occasionally see hopeful articles about how consumer spending would have to pick up soon, because of all the “pent-up” demand. If people hadn’t been buying cars for a while then presumably their cars would wear out, and this would trigger new demand for replacements. Of course I knew that there actually was no light at the end of the tunnel, which made these articles seem slightly pathetic—as if they were grasping for straws. They overlooked the fact that the depression made America much poorer, and that low consumer demand reflected that poverty. For similar reasons, there isn’t much “pent up demand” for cars in Somalia, despite low sales in recent years.
Sometimes I see this argument applied to the housing slump. Housing construction is down 70%, to levels far lower than at any time in post-war history (relative to population.) And this slump has been going on for a number of years. Surely we’ll soon need to build more houses, to meet our growing population. If only that were true. Unfortunately, as sharply as housing construction has fallen, household formation has fallen even faster.
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