Transcript BSPS Seminar: Household Formation Economic and housing market influences on household formation: a review. Prof Glen Bramley (Heriot-Watt University, Edinburgh, UK Contact: [email protected]; +44 (0)131

BSPS Seminar: Household Formation
Economic and housing market influences on
household formation: a review.
Prof Glen Bramley
(Heriot-Watt University, Edinburgh, UK
Contact: [email protected]; +44 (0)131 451 4605)
16 December 2013
School of the Built Environment
Background
• Migration & household formation are central to sub-national
demographic forecasts and important for physical & service planning
and especially for housing
• Traditional approach reliant on extrapolative projections remains
popular
• There has been an economic critique of this, arguing that labour and
housing markets influence these trends
• Speculate about reasons for reluctance to incorporate these in
projections – unfamiliarity with econometrics – predicting the
predictors – ‘need’ vs demand – taint of uncertainty
• Problems which can result – ‘circularity’ and underprovision - out of
phase with cycles - persistent discrepancies households vs dwellings
- lack of realism about adjustment mechanisms in market –
inappropriate planning between related geographical areas
School of the Built Environment
Objectives
• Review literature on economic influences on household formation
• Highlight particular findings from this literature
• Consider economic-based forecasts for (domestic) migration and
household formation at sub-regional scale
• Introduce one such modelling framework
• Demonstrate application of this model in England with particular
reference to relationships between supply and household growth
• Comment on recent household numbers and projections in the light
of this
• Suggest some ways forward
School of the Built Environment
Earlier Review
• Bramley, Munro & Lancaster (1997) reviewed economic influences on
household formation for DOE
• Drew on range of earlier studies, esp US work
• Confirmed importance of demographic fundamentals (age, sex,
mar/ptnr status) & demographic events
• Main arena for econ infl is younger non-family adults, altho’
marriage/partnership & fertility may be affected also
• Income elasticities ranged 0.05-0.40, but much higher for young nonfamily (0.3-1.8)
• Relatively inelastic with housing costs (-0.01 to -0.28); income &
price offsetting
• Some evidence that social housing (rationed) has direct supply effect
• Higher educn; skills; ethnicity & culture; benefits?
School of the Built Environment
DAE/DTLR Model & other work c.2000
• Peterson et al (DETR, 1999) used aggregate GHS time series data to
model household formation as part of wider economic ‘need’ model,
updated in DTLR (2002)
• Found income effect of 0.33 (higher due to use of consumption), also
–ve influence of unemployment
• Sensitivities quoted in 1999 DETR Household Projections
• Other studies involving micro-modelling of household transitions
included
Ermisch, J. (1999) Prices, Parents and Young People's Household Formation.
Journal of Urban Economics 45, 47-71
Clark, W.A.V. and Mulder, C.H. (2000) Leaving Home and Entering the
Housing Market. Environment and Planning A 32, 1657-1671.
School of the Built Environment
DCLG ‘Affordability’ Model
• This model drew on work by Andrew & Meen (2003), and included
household formation function in ‘Affordability Model’ (ODPM 2005,
Meen et al 2007, Meen 2011)
• Micro-simulation based on probit model fitted to BHPS data (part of
wider tenure choice model)
• Also found demographic variables most important
• Incomes, unemployment & housing cost played modest role
- however, housing cost only tested at regional level
- model only applied to under-35s
• Similar approach subsequently adopted in Leishman et al (2008)
Scottish Affordability Model
• Meen & Nygaard (2008) & Nygaard 2011 looked at effects of different
international migrant flows
School of the Built Environment
Further studies and EHN
• Bramley, Champion & Fisher (2006a) explore household transitions
and relationship of migration and mobility with household formation,
finding effects (often indirect, via mobility) of range of economic
variables
• Bramley et al (2006b) modelled LA level aggregate headship x age in
Scotland, finding effects of rental tenure, income, class, house prices
• Bramley et al (2010) Estimating Housing Need study for DCLG
modelled new household transitions (for under/over 40s) using logit
in BHPS micro data with housing & labour market variables attached
at SAR district level
• Found effects from recent migrancy, tenure, qualifications, working,
area unemployment, house price, income, & social lettings
• Incorporated in regional simulations of housing need outcomes (with
linked inputs from CLG-Reading ‘Affordability’ model)
- although additional direct feedback from vacancy rates was needed
School of the Built Environment
EHN Supply Scenarios
Table 7.1: Impacts of four supply scenarios relative to baseline, 2009-2021
Impact Summary Extra
Extra Social Net Addn
Extra Private Net Addn
Household Growth
New Household Formation
stock-hhd reconcil adj
Change Own Occ Hhlds
Change Soc Rent Hhlds
Change Priv Rent Hhlds
New Social Lettings
Hhlds 'Rationed Out' of SR
Total Need backlog
Private Vacancies
Social Vacancies
Hi Social
268,845
-3,005
235,285
208,963
93,188
130,292
246,491
-146,829
282,479
-25,138
-167,902
8,770
13,258
Hi
Private
Med Both Hi Both
9,021 200,003 267,201
435,243 292,695 430,697
347,247 406,299 567,487
19,175 162,753 231,404
309,844 270,525
364,352
113,216 168,231 232,168
13,734 187,448 251,721
201,766
44,215
78,227
17,358 216,960 287,731
2,699
-10,827
-19,684
-90,787 -184,554 -252,150
46,701
36,015
48,693
-5,026
5,689
6,628
School of the Built Environment
Other Recent Literature
• Several studies claiming clear evidence of cyclical recession effects
(from incomes and labour market) on household formation (Lee &
Painter 2013, Dyrda et al (2012), Paciorek (2013)
• Some of these also point to effect of housing costs (Paciorek 2013) or
sub-prime crisis
• Studies focused on longer term decline of owner occupation,
suggesting real situation compounded by declining young headship
(Rosenbaum 2013)
• Studies comparing ownership rates x ethnic group misleading for
same reason (Yu & Haan 2011, Nygaard 2011, Yu & Myers 2010)
School of the Built Environment
‘Gloucestershire’ Model
• Model arose out of feasibility study into sub-regional housing market
models undertaken for former NHPAU 2009-10
• Operationalised in study for Gloucestershire County & Districts in
2011, used to inform SHMA
• A medium-term model geared for policy simulations with particular
focus on new build, household growth, affordability, housing needs
• Geographical framework of 102 Housing Market Areas (HMAs) based
on LA Districts developed in parallel NHPAU research (Jones,
Coombes et al)
• Econometric functions for key variables based mainly on aggregate
panel data, but some based on micro-models
• Other exogenous or intervening variables projected in simpler
mechanistic fashion
• Simulation model implemented in Excel workbook
• Similar model subsequently developed for New Zealand
School of the Built Environment
Main Behavioural Components of Model
•
•
•
•
•
•
•
•
Real house prices (mix-adj)
New private build completions (mix-adj)
Migration gross flows x 4 age groups
Household formation (headship) x 3 age groups [micro – BHPS]
Household income (proxy-based prediction) & low income
Social housing lettings
Private rents
Housing needs incidence [micro – EHS/S E H]
School of the Built Environment
School of the Built Environment
School of the Built Environment
Examples of Migration Equations
Variable Description
Varname
Adjacent out-migration
Lagged in-migration
International in-migration
Population 000s
Relative price index (1.0)
Adjacent relative price
Mortgage interest rate
Household income £k pa
Unemployment age 25-44
Younger adults/25-55
Social rented tenure
Private build output rate
Adjacent private build rate
High occupational class
Single adult non-eld hhd
White British persons
Net residential density pph
Sparsity ha/persons
Students
IMD low income score
Adjacent IMD low income
Distance city centre km
Greenspace /land area
Air quality index
Climate index (warm/dry/etc)
Scenic areas access
Cars per m of road
Constant
pgomal_s
pgin_1
pintmin
npopk
prrlprc3
rlpric_s
mint
hhinck
asunem
pyngla
psrla
prppcmp3
ppcmp_s
hiclas
hh1
pwhiteb
netdens2
spars01
pstud01
imdlwinc
imd_s
dist150k
pgreenh
air
climate
scenic
carspm
_cons
Children
Young Adults
In
Out
In
Out
pgin014
pgot014
pgin1524 pgot1524
0.621
0.326
0.360
0.728
-0.107
-0.183
0.226
0.133
0.000
0.000
-0.929
-0.365
0.724
-1.961
-0.086
-0.036
-0.166
-0.110
-0.049
-0.063
0.058
0.088
0.049
0.157
0.063
-0.262
-0.062
-0.052
0.332
0.369
-0.569
0.240
-0.861
0.314
-0.039
0.674
-0.126
-0.298
0.008
-0.058
-0.077
0.630
0.015
10.418
5.568
0.358
0.213
0.053
1.159
1.450
-0.176
-0.862
0.471
0.972
-0.116
-0.477
0.564
-0.037
-0.293
-0.327
-13.057
-0.446
7.193
School of the Built Environment
Influences on Migration
• Structural effects – in-migration -> out-migration; size of area/popn;
adjacent out-migrn -> in-migrn
• Geographical effects - sparsity & counter-urbanisation
• Demographic effects – singles vs couples; younger (like attracts like);
ethnic effects
• Socio-economic effects - employment -> mobility and moving
towards opportunity by younger groups; students
• Income –ve? but poverty more -ve
• Tenure - social renting -> less in-migrn
• Housing market – relative house price -> -ve for in-migrn
• Housing supply – strong +ve effects on in- & net migrn; but –ve
diversion effect of adjacent supply
• Environmental effects, esp climate +ve
School of the Built Environment
Household Formation (HRRs) - Elasticities
Variable Description
Male gender
Get un-married
High occupational class
Sick or disabled
Student
Previously private renting
Previously in lone parent hhd
Previously in couple family
Previously in multi-adult hhd
Married
Previously social renting
Ethnic minority
Social Lettings
Aged 25-29/aged 25-55
Aged 30-34/aged 25-55
Migrant (between localities)
Has own children
Acquired child
Unemployed (indiv)
Lwr quartile house price (£k)
Indiv Income £k
Varname
omale
getunmar
hiseg
dsickdis
dstud
prevpr
olpar
ocfam
omult
omar
prevsoc
oethnic
pslets
oage2529
oage3034
migrant
onchild
getchild
dunem
lplqk
dincindrk
HRR age 15-24 HRR age 25-59 HRR age 60+
hr1524
hr2559
hr60ov
0.220
0.512
0.354
0.020
0.017
0.006
0.003
0.271
0.169
0.019
0.016
-0.151
0.059
-0.019
-0.433
-0.165
-0.008
-0.356
-0.105
-0.019
-0.015
-0.120
-0.789
0.065
0.026
0.048
-0.014
0.000
0.144
0.044
-0.055
-0.046
-0.030
0.101
0.134
0.085
0.009
0.014
-0.005
-0.002
-0.174
-0.046
0.239
0.221
0.170
School of the Built Environment
Influences on headship
• Range of expected age & household type background
effects;
also migrant (+0.10), student (+0.27), ethnic (-0.014) for
younger group
• Income elasticities 0.24 / 0.22 /0.17; also high SEG.
• House price -0.174 / / -0.046 [in retrospect, should have also
modelled age 25-34 separately]
• Unemployment marginal -ve
• Tenure (previous): priv rent +0.17 / 0.02 / 0.02
: soc rent +0.07 / 0.03 /0.05
• Social lettings supply +0.14 /+0.04 / -0.06
• Vacancy rates – no consistent/significant effects
(but necessary to impose some feedback in simulation)
School of the Built Environment
Household Growth Rates
England
19912001-11
2001 PrevProj
Growth%
7.1%
9.9%
Number pa
135,688 202,329
2011-21
PrevProj
Growth%
10.3%
Number pa
232,960
2001-11
NewProj
7.7%
157,965
2011-21
NewProj
10.0%
220,528
2001-11
GAM
7.3%
149,232
2011-21
GAM
7.9%
173,230
Previous 2008-based projections envisaged higher growth, due to higher int migrn;
‘Reality’ of shortage of supply has led to much lower growth up to 2011.
Gloucs Model tracked actuality reasonably. Looking forward, new interim
projections envisage resumption of similar growth, but GAM predicts a lower
likely outturn, due to recession and very low new build output in early years.
School of the Built Environment
Regional Household Growth
Household Growth Comparisons between Models by Region 2011-21
16.0%
14.0%
12.0%
Percent
10.0%
PrevProj
NewProj
8.0%
GAM
6.0%
4.0%
2.0%
0.0%
NE
YH
NW
EM
WM
SW
EE
SE
GL
Region
New projection and GAM show lower growth for Y&H, SW and EE than 2008 projn
New projection, but not GAM, show somewhat lower growth for NE, NW, EM
New projection shows similar for SE (& WM) but GAM shows signif lower
New projection shows much higher growth for London, but GAM shows much lower!
London figures strain credibility
School of the Built Environment
Young Adult Headship
Headship Rates for 20-29 Year Olds, Selected English Regions
1992-2012
.4000
.3500
Headship
.3000
NE2029
.2500
EM2029
.2000
SE2029
.1500
GL2029
.1000
.0500
.0000
1990
1995
2000
2005
2010
2015
Year
Source: Fitzpatrick et al (2013) Homelessness Monitor 2013 CRISIS, based on Labour Force Survey
Comment: London & SE rates have fallen significantly since early 1990s; EM & NE fell a bit later;
all regions blipped up in 2010 but dropped back in 2012
School of the Built Environment
Tenure and New Household Flows
Estimated number of new households forming, by tenure of first destination
2002-2010 (000s)
Tenure
2007
2008
2009
2010
2011
131
76
183
72
44
229
40
48
208
55
71
268
75
48
259
Total
400
390
345
296
394
Source: Survey of English Housing and English Housing Survey Reports.
Note: years refer to financial years 2007/08 etc.
381
Own
Social rent
Private rent
2002-06
avg
118
92
190
Overall new household formation slumped in 2008-09, recovered in 2010
Biggest drop in owner occupation – only partially recovered by 2011
Generally lower level of access to social renting as well
Situation ‘saved’ by rise of private rented lettings (BTL)
School of the Built Environment
Identity Relationship
• There is an identity relationship between households and dwellings
(sometimes called the ‘Holmans identity’)
• In change form, this states that
ΔHH ≡ ΔDWG - ΔVAC - ΔSEC + ΔXSHR
[the change in households is identically equal to the change in dwellings (‘net
additions’) minus the change in vacancies minus the change in second homes plus the
change in ‘excess sharing households’]
• This helps to explain recent events in household numbers game
• If the supply of dwellings is dramatically reduced, and vacancies
cannot go much lower, and second homes don’t change very much,
and sharing is pretty rare, then…
household growth will inevitably fall, mainly through mechanism of
new household formation, mainly affecting younger adults
(age related dissolutions unaffected)
• This shows that household growth will be strongly influenced by
dwelling supply, particularly in a ‘tight’ situation
- in a looser market you may see more change in vacancies and
demolitions
School of the Built Environment
Model Simulations of Response
Household Growth Response to New Build
Impact
On
Gloucs
WoE
SEGAS
SEGAS
England
Scenario
Gloucs only low
Glouc, WoE & Adj Low
G, WoE, Adj & SEGAS low
All South Low
All England Low
2016
0.21
0.29
0.27
0.26
0.15
2021
0.97
0.96
0.91
0.87
0.78
2031
0.77
0.87
0.80
0.81
0.87
Gloucs
WoE
SEGAS
SEGAS
England
Gloucs only High
Gl, WoE, Adj High
Gl, WoE, Adj & SEGAS High
All South High
All England High
0.21
0.29
0.28
0.26
0.14
1.08
1.00
0.95
0.90
0.83
0.70
0.87
0.80
0.82
0.85
London
London V High
0.38
0.95
1.00
England
More SR (AH)
0.77
0.69
0.77
School of the Built Environment
Implications of Simulation
• As expected (on basis of past research, theory, and ‘identity’),
household formation responds to new build supply
• Response is lagged, takes time to build up; still quite low at yr 5
(20-30%)
• After 8-10 years, response level is high, 80-100%
• After 18-20 yrs, response level fades somewhat (70-85%)
• Local variation in response rates, also depending on
contextual/adjacent supply changes – London particularly high
• Local responses strongly affected by migration
• Building more social/affordable housing would have earlier positive
impact on household growth, but more moderate later peak
• (Note that examples are mainly pressured South; England level
responses slower initially)
School of the Built Environment
Household Formation vs Migration
Share of Household Growth Attrib to Household Formation
Scenario
Gloucs only low
Glouc, WoE & Adj Low
G, WoE, Adj & SEGAS low
All South Low
All England Low
2016
0.42
1.24
0.70
0.91
0.98
2021
0.73
0.86
0.70
0.74
0.99
2031
0.18
0.19
0.05
0.17
0.98
Gloucs only High
Gl, WoE, Adj High
Gl, WoE, Adj & SEGAS High
All South High
All England High
0.44
1.27
0.73
0.95
0.98
0.75
0.84
0.70
0.73
0.99
0.09
0.24
0.04
0.16
0.98
London V High
-0.19
0.39
-0.10
More SR (AH)
0.99
0.98
0.99
School of the Built Environment
Comments on Household Formation Share
• At national level, virtually all of difference between scenarios in
household growth is attributable to net household formation, and
none to migration (given fixed international migration & balanced
internal migrn)
• At local level, this share is quite variable, and it also varies over time
e.g. Gloucs relatively low, West of England rel high
• In long run, local household growth responses mainly dominated by
migration
• London responses strongly dominated by migration
School of the Built Environment
Migration & Growth Scenarios
• Higher international immigration would...raise household growth, esp
in London, worsen affordability (& need), but reduce household
formation
- hhd increase % only 0.26-0.34 of popn increase % (vs 0.45 in New
Zealand) (ie. elasticity of hhd wrt popn)
• Higher economic growth (+0.5% pa) would raise household growth
by 7-13,000 pa (2-6%), ignoring any induced extra international
migration
- in 2031 household numbers would be 0.6% higher (vs GVA 10.5%
higher)
- note offsetting effects of higher prices (similar to NZ model)
• Combination of these would raise hhd growth by 14-26,000 (8-11%)
- 2031 hhd numbers 1.5% higher (vs. 2.2% more popn)
- affordability would be 1.4% worse in 2016 but +0.3% by 2031
- household formation would be suppressed by 15-25,000 pa
School of the Built Environment
Other Scenarios
• Ending credit rationing completely could greatly increase new build
(45-65%), affordability (20-25%) and household growth (3%-46%)
[but treatment of this factor in model is crude, with lack of pre-2007 experience to
calibrate it]
• More Buy to Let activity would worsen affordability to buy (-1 to -7%)
but net effect on household growth/formation slight
• Relaxing planning controls over size mix would lead to a moderate
increase in housebuilding numbers (1-9,000 pa), associated with a
general reduction in dwelling size, and a modest increase in
household growth (3-4,000 pa), with stronger effect in London
• Very high London supply (doubling plan numbers) would raise output
a lot (10-20,000 pa) and would increase household growth (4-20,000
pa, 26-72%), almost entirely thru’ migration (i.e. little extra net
household formation); affordability would be a bit better (1.3-2.2%)
- but even this would not match the 2013 Household Projections!!
School of the Built Environment
So What (is to be done)?
•
•
•
•
Demographers, planners & economists need to talk
We need to talk to Boris about his figures
Traditional household projections are necessary but not sufficient
Recent turbulence has exposed weaknesses in process, exacerbated
by austerity cuts in analytical capacity in government
• Planning policy guidance (2013) rightly emphasizes a range of
measures of (in) adequacy of housing numbers to be presented
through SHMA, including household projections, affordability, price
trends, housing needs (incl concealed hhds) and employment growth
• ‘Planning’ in full sense requires longer forward look and comparisons
of options with outcome performance measures
• Such a forward look will be more meaningful if it is based on models
which take account of economic feedback effects
School of the Built Environment
References
Andrew, M. and Meen, G. (2003). “Housing Transactions and the Changing Decisions of Young
Households in Britain: The Microeconomic Evidence”, Real Estate Economics, 31(1): 117-138
Andrew, M., Bramley, G., Leishman, C., Watkins, D. & White, M. (2010) NHPAU Sub-Regional
Market Modelling Feasibility: Main Report on Model Testing and Feasibility. NHPAU/DCLG.
Bramley, G. (2013) ‘Housing market models and planning’, Town Planning Review, 84:1.
Bramley, G. & Watkins, C. (1995) Circular Projections: Household Growth, Housing Need and the
Household Projections. London: Council for the Protection of Rural England.
Bramley, G. & Watkins, C. (1996) Steering the Housing Market: new building and the changing
planning system. Bristol: Policy Press
Bramley, G. (2012) 'Housebuilding, demographic change and affordability as outcomes of local
planning decisions; exploring interactions using a sub-regional model of housing markets in England',
paper presented at European Network for Housing Research Conference, Lillehammer, Norway, June
2012.
Bramley, G., Champion, T. & Fisher, T.(2006) ‘Exploring the household impacts of migration in
Britain using panel survey data’, Regional Studies 40:8, 907-926.
Bramley, G., Karley, N. K., & Watkins, D. (2006b) Local Housing Need and Affordability Model for
Scotland – Update (2005-base). Report 72. Edinburgh: Communities Scotland.
Bramley, G., Munro, M. & Lancaster, S. (1997) The Economic Determinants of Household
Formation: A Literature Review. DETR, London.
School of the Built Environment
Dyrda, S., Kaplan, G., & Rios-Rull, J.-V. (2012) Business Cycles and Household Formation: the
Micro vs the Macro Labour Elasticity. NBER Working Paper No. 17880.
Ermisch, J. (1999) Prices, Parents and Young People's Household Formation. Journal of Urban
Economics 45, 47-71.
Glaeser, E., Gyourko, J. and Saks, R.E. (2006) Urban growth and housing supply, Journal of
Economic Geography 6, 71-89.
Glaser, K. and Grundy, E. (1998) Migration and Household Change in the population Aged 65 and
Over, 1971-1991. International Journal of Population Geography 4, 323-339.
Holmans, A. (2009) ‘Flows and Households Formed 27.1’ Technical paper. Cambridge Centre for
Housing and Planning Research.;
Jones, C., Coombes, M., & Wong, C. (2010) Geography of Housing Market Areas: Final Report.
Research Report to DCLG. London: DCLG
http://www.communities.gov.uk/publications/housing/geographyhousingmarket
Lee, I.O., Painter, G. (2013) ‘What happens to household formation in a recession?’, Journal of
Urban Economics, 76, 93-109.
Leishman, C., Gibb, K., Meen, G., O’Sullivan, T., Young, G., Chen, Y., Orr, A. and Wright, R. (2008)
Scottish model of housing supply and affordability: final report, Edinburgh: Scottish Government
School of the Built Environment
Meen, G. & Andrew, M. (2008) ‘Planning for housing in the post-Barker era: affordability,
household formation and tenure choice’, Oxford Review of Economic Policy, 24:1, 79-98.
Meen, G. & Nygaard, A. (2008) International Migration and the Demand for Housing.
International Centre for Housing and Urban Economics, University of Reading.
Meen, G. (2011) ‘A long run model of housing affordability’, Housing Studies, 26:7-8, 1081-1103.
Nygaard, C. (2011) ‘International migration, housing demand and access to homeownership in
the UK’, Urban Studies, 48:11, 2211-2229.
Paciorek, A. D. (2013) The Long and the Short of Household Formation. Finance and Economics
Discussion Series. Divisions of Research & Statistics and Monetary Affairs. Federal Reserve Board,
Washington DC.
Rogers, W.H., & Winkler, A.E. (2013) The Relationship between the Housing and Labour Market
Crises and Doubling-Up: an MSA-level analysis 2005-2010. Discussion Paper 7263, Forschunginstitut
zur Zukunft der Arbeit/Leibnitz Information Centre for Economics.
Rosenbaum, E. (2013) ‘Cohort Trends in Housing and Household Formation since 1990’ in J. R.
Logan (ed) The Lost Decade: social change in the US since 2000. Russell Sage Foundation.
Yu, Z., & Haan, M. (2012) ‘Cohort progress toward household formation and homeownership;
young immigrant cohorts in Los Angeles and Toronto compared’, Ethnic and Racial Studies, 35:7,
1311-1337.
School of the Built Environment