One of the under-reported consequences of the Covid-19 pandemic is its negative impact on household formation, according to new research from the U.S. Federal Reserve.
In a research note, the Fed reported that the U.S. aggregate headship rate — the ratio of households to adults in the population — has “fallen dramatically” since the pandemic emerged, largely as adults have moved back in with older family members.
The ratio of households to adults in the U.S. dropped by a full percentage point from February through June, it noted.
“This decline is of essentially the same magnitude as that seen over the entire Great Recession, and it corresponds to a drop in the number of occupied housing units—or an increase in the number of vacant units—of roughly 2 million,” the Fed said.
Household formation is a key driver of housing demand and construction.
It also reflects conditions in the job market — in this case, the surge in adults moving back in with their families appears largely related to the jump in unemployment due to the pandemic.
“Similar to many other consequences of the pandemic, these changes have been particularly stark among young adults, Black adults, and those without a college education,” it found.
This trend may reverse once the pandemic subsides, but the paper said it’s also possible that the pandemic will have a “scarring effect” on household formation, “which could in turn depress new construction and have persistent impacts on wealth accumulation and inequality.”