Daniel Bentley and Alex McCallum, February 2019
Over the past two decades, UK household formation rates have undergone a striking change. After many decades during which the number of households per head of population was rising, since around the turn of the twenty-first century that ratio has plateaued and even begun to fall. The manifestation of this can be seen in average household sizes which ceased their decades-long decline and have shown signs in recent years of beginning to rise. These developments have implications for policymaking, and particularly housebuilding targets, because they suggest at first glance that fewer households may be formed in the future than has been anticipated previously, based on past trends. Some commentators go as far as to suggest that there is no shortage of housing given that fewer households are now being formed than homes are being built.
But this raises an important question: has this turning point in household formation rates been the result of unconstrained lifestyle choices, or has it been a response to economic pressures and, in particular, the state of the housing market? Have household formation rates undergone a natural shift to which policy should now adapt, or have they been depressed by constraints which are transitory and/or remediable? This paper explores this issue and seeks to shed some light on how and why these changes in household formation have occurred.