A Demographic Depression

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.

Jim Glass sent me some very interesting data on household formation, which casts a very different light on the recent housing crash.

By my simple measure recent housing starts peaked with an inventory of 40% of an average year’s worth of starts above the trend line in 2007. That’s a cyclical high but a typical one. About the same or a little higher was reached in three other cycles since 1960.

But the plunge in starts since 2007 is unprecedented — by the end of 2010 cumulative starts were 72% of an average year’s worth of starts below trend. The next-lowest figure was 46% below trend back in 1970. If things were “normal” this would predict a huge boom in housing starts soon.

But housing starts are *following* household formation, which is plunging even faster, like an ICBM heading straight to its target.

In 2007 household formation was 1627k (average 1998-2007: 1499k) and housing starts were 1355k (average 1998-2007: 1716k). In 2010 household formation was all of 357k, down 78% from 2007 and down 76% from the prior ten year average. Housing starts were 587k, down 57% from 2007 and down 66% from the prior ten years. That’s a big fall, but it is still *well behind* the fall in household formation.

If I still had my blog I’d post the graphs — the line for household formation is heading straight down like to the bottom of the sea, it’s three times the fastest-deepest decline of the last 40 years. The line for housing starts looks like it is just striving to not fall too far behind.

I hate to be the bearer of bad news, but that light at the end of the tunnel is an onrushing train called falling household formation.  It’s caused by three factors:

1.  Less immigration due to the post-2006 crackdown.

2.  Less immigration due to the severe recession and high unemployment

3.  20-somethings who can’t get jobs are living with their parents.

The problem is not that we built too many houses and need to work off the excess.  Yes, we did, but we worked off that excess long ago.  No the current problem is crashing demand for homes due to an unprecedented plunge in household formation.  Call it a demographic depression.  And the root cause?  I know I’m going to sound like a broken record, but the biggest cause in low NGDP (although obviously other factors are also at work here–including immigration crackdown, minimum wage increase, extended unemployment insurance, etc.)

PS.  I can’t wait for some smart alec commenter to write in and tell me the minimum wage increase can’t possible affect household formation, as no one can afford to live by themselves on the minimum wage.  I already look forward to slapping you down.  So go ahead and make my day.

PPS.  This website shows that the Census had forecast household growth of about 1.1% per year.  In this website you can find the data Jim used; only a 0.3% growth in household formation last year.  And it’s possible the Census is a bit behind the curve, as for instance they didn’t catch up to the 1990s immigration surge until the 2000 census.  Thus it might be even worse than Jim’s figures show.

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About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

1 Comment on A Demographic Depression

  1. Illegal Immigration, the Debt Ceiling and Discretionary Spending.

    Only the Liberal progressives hidden beneath the Democratic Sub-Rosa disguises would deny that the Federal government has grown too large. The Tea Party which is materializing in the tens of millions, insist that agencies of this administration, should be returned to the authority of each State, County and municipal jurisdiction. There is nothing more important than after the 14.4 Trillion US treasury deficit be resolved, that rational Americans should demand of their government, that this nation returns to the written word in our founding fathers document. Another extremely important issue, is the connection between discretionary spending and Illegal Immigration. This has been completely ignored for thirty years or more and must be part of capping the debt ceiling. In 2012 will be the historical pinnacle of all general elections, demanding that bureaucrats no longer undermine our public school system and placing the fate of our countries education back in the eager hands of local government, where these entities are meant to be. President Obama or any of the previous administrations have permitted this type of overwhelming influence to happen, even more so in the last few years.

    The only connection I have with Los Angeles is an uncle in the police force, that concurs with me about a Leftist Governor and Mayor, who are still writhing under a massive treasury deficit of 24 billion dollars and yet are out to force through the majority in the Liberal Capitol, a California Dream Act. Even the Dream Act on a national scale being the chief issue, its the CHAIN MIGRATION that pours in afterwards. The liberals well no disclose the hundreds of billions of dollars spent, for previous and subsequent Amnesties of any kind? Promising no public funds would be in the outlay, anybody with a prudent mind knows that these students will find some form of concealed money available. With no real transparency dollars will come from somewhere, while the kids of US citizens remain on the sideline. John, a police Sergeant has informed me of rising crime in his precinct and the deterioration of the neighborhoods; full of fast food wrappers littering streets, junk cars, old furniture and other garbage discarded there. The only reason he stays in the State is his pension and benefits, otherwise he would be gone.

    While the Maryland’s Dream Act approval is going to be decided by the people of the State, then while there is a huge divide in this predominant interest of illegal immigration, shouldn’t the Legislators in Washington provide a Nationwide Referendum on whether this sovereign nation should be given the right decide the future governing this ugly issue. A Referendum before the People, could approach these issues; which are many, including a National Dream Act, A moratorium on all immigration, mass amnesty, sanctuary cities and States, 14th Amendment birthright baby citizenship that will settle this growing disaster for good. Americans and not open border lobbyists or activists, will end this torment once and for all and remove the welfare payouts.to economic foreigners, closing hospital doors, the children gaining admittance to our once high performance high schools and lowering the rate of illegal individuals ending up in our prisons.

    I took my son out of a Los Angeles public school, because the majority of the children in the classroom were of foreign nationality. He was just not learning, because the overworked school teachers had to spend more time with students with English as a second language. This was in the late 1970s and that illegal immigration to the golden state was influencing the politics in Sacramento. Federal agencies should be downsized including the Dept of Education, Dept of Labor, Freddie Mac/ Mae that has some obligation for the real estate crash and hundreds of agencies, which could be reestablished in the 50 States, where they would not be bloated with over-manned public servants. As in many issues, same sex marriages should be the under the authority of individual States, not the feds. Government was never meant to reign over THE PEOPLE with so much influence and power, that seems only to be the agenda of the George Soro’s and his political puppets who donated to:

    ACORN (Supposedly dismantled, that was caught up in fraudulent voter registrations) Tides Foundation, Huffington Post (a Liberal-oriented Media) The Southern poverty law Center, People of the American Way, Planned Parenthood and one of the most radical pro-immigration groups of all, National Council of La Raza ( The latter organization has indoctrinated young Hispanics, with the brainless idea that Southwest America belongs to Mexico? ) Soros has said openly he would like nothing better than for America to become submissive to international entities and with his money to restrict American sovereignty. This fanatical billionaire has been trying since 1993, to influence our government and away from the document that greatly benefits us all, the US Constitution. In his early intervention in his push for Liberal success, was his financial support that spring-into-action Barack Obama’s political career. To me it’s surprising that this George Soros, a dangerous to our society hasn’t met the wrong end of a bullet from some crazy with a gun.

    Something that must stay in full daylight, is illegal aliens are voting in—only citizens– elections. But neither the US government nor the main stream media, if publicized at all will a short paragraph in some elusive corner of the national newspaper. One has to scour the Internet for “Voter Fraud” information, to see that this is not a local occurrence, but wide spread.

    That was when I found another professional position in a community outside of Indianapolis, and fled there with my family. In the less populated areas, there was no illegal alien gang members and where I am is quiet and peaceful. I still have relatives in Los Angeles County, who keep me abreast of the invaders who have brought wide scale corruption and rot to the greater metropolis and a huge reservoir of debt, from liberals and Democrats catering to the millions of unlawful aliens. It’s also apparent that nothing on this issue is going to get better, as foreign nationals from other States are giving a wide berth to the policing laws effective in Arizona. It also seems inevitable that hundreds of thousands are running scared by rightful laws in Georgia, Alabama and other less welcoming states of illegal nationals fleeing into California, Nevada and Washington State.

    Only the Tea Party believes in self-reliance on one’s own ability to succeed, and not live of the strained welfare gifts of taxpayers. In this time of need, we should be assisting our own citizens and legal residents. Immigration at the federal level has been the worst of failures. Not since the 1920’s has there been a true time of enforcement. States have been suffering under the illegal immigration occupation for years, with a disregard by the federal government to implement any real restrictions. If such was the case, much of the necessity for enforcement would not be needed if illegal entry carried a felony and imprisonment. Why bother to even recognize the sovereign laws of this nation, if you can just be deported, unless there was a heinous criminal act involved. Under the laws now set by Congress, thousands still return and disappear. Even the nation across our border has more harsh laws, such as a felony and prison. Our federal immigration courts are crammed with undesirables, who have committed crimes. There is an avalanche of data, which ominously indicates that thousands of illegal aliens are causing mayhem on our highways, killing and maiming pedestrians and other innocent drivers.

    Right now on paper President Obama is showing some fortitude in going after business owners hiring illegal workers, but hidden from view is a memo to Czar Holden not to apprehend aliens with minor criminal complaints against them. Does this new order from higher ups mean it’s irrelevant to the “Rule of Law?” It seems to me and a good part of America’s population, that the President’s appointees, can do whatever they like. Doesn’t seem to matter that this country has 13 million US born or permanent residents out of work? U.S. Rep. Lamar Smith R-San Antonio, said the illegal aliens hold 8 million jobs, according to a news release distributed last December. So what should the US government do about this bold public disclosure? It should permanently put on the books, the E-Verify and Secure Communities tools, with zero tolerance policies. E-verify to identify illegal workers and those who are arrested and their fingerprints released to ICE and other enforcement agencies. The democrats are adamantly stating in their editorials, that illegal immigration is shrinking, but say little or nothing about the 20 million plus already illegally settled here eating away at welfare and public services.

    Most Americans know by now that both parties are to blame, with many subsidized resources being lapped up by a major majority through either forged ID, or just using other legal family members Social or in some cases Drivers Licenses. Even today after the massacre at the New York Trade Center, Washington State, Utah are still issuing some form of Drivers License to illegal immigrants. New Mexico and others have finally have realized the negative impact of giving licenses to illegal migrants and immigrants. The Sanctuary state of California, could well be caught in the brunt of illegal people fleeing with their baggage. Even Nevada may not fare so well, on the move from policing laws.

    Not necessarily Rep. Michele Bachmann, but we need a social conservative, a Tea Party leader, who bring Obama to his knees, stop the future bleeding of our Health care system with Obamacare, slow the monolithic progress of federal government and return power to the States. Re-negotiate honest, fair free trade agreements compromised by China. Remove job-killing regulations and taxes, from corporate and the small businessman who will start hiring again. Under the Democrats and its hidden Liberal interference less taxes on companies, will improve the viability of high paying jobs from being exported. Overtime thousands of businesses will return home, having a more stable environment and not being under constant pressure from government and its minions. Remember, America is the greatest consumer nation in the world, and we can wheel and deal for the best trade agreements. People in our nation are finally returning from a deep sleep, realizing we are giving away our countries manufacturing and industrial base.

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