.
(Heriot-Watt University, Edinburgh, UK
Contact: g.bramley@hw.ac.uk
; +44 (0)131 451 4605)
16 December 2013
School of the Built Environment

• 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

• 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

• 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

• 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

• 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

• 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)
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

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
Hi
Private Med Both Hi Both
9,021 200,003 267,201
-3,005 435,243 292,695 430,697
235,285 347,247 406,299 567,487
208,963 19,175 162,753 231,404
93,188 309,844 270,525
364,352
130,292 113,216 168,231 232,168
246,491 13,734 187,448 251,721
-146,829 201,766 44,215 78,227
282,479 17,358 216,960 287,731
-25,138 2,699 -10,827 -19,684
-167,902 -90,787 -184,554 -252,150
8,770 46,701 36,015 48,693
13,258 -5,026 5,689 6,628
School of the Built Environment

• 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

• 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

• 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
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 hh1 pwhiteb netdens2 spars01 pstud01 imdlwinc imd_s dist150k pgreenh air climate scenic carspm
_cons
Children
Varname In pgomal_s pgin_1 pgin014
0.621
-0.107
pintmin npopk prrlprc3 rlpric_s
-0.929
mint hhinck asunem pyngla psrla prppcmp3 ppcmp_s hiclas
-0.086
-0.110
0.058
-0.062
0.332
-0.569
0.674
-0.126
-0.298
0.008
0.630
0.015
10.418
Out pgot014
0.360
-0.183
0.724
-0.036
-0.049
0.088
0.063
0.240
-0.039
-0.058
-0.077
Young Adults
In Out pgin1524 pgot1524
0.326
0.226
0.000
0.728
0.133
0.000
-0.365
-1.961
-0.166
-0.063
0.049
0.157
-0.262
-0.052
0.369
-0.861
0.314
0.358
0.213
1.159
1.450
-0.176
-0.862
0.564
5.568
-13.057
0.053
0.471
0.972
-0.116
-0.477
-0.037
-0.293
-0.327
-0.446
7.193
School of the Built Environment

• 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 hr1524 omale getunmar
HRR age 15-24 HRR age 25-59 HRR age 60+
0.220
hr2559
0.512
hr60ov
0.354
0.020
hiseg dsickdis dstud prevpr olpar ocfam omult omar prevsoc oethnic pslets oage2529 oage3034 migrant
0.017
0.006
0.271
0.169
-0.151
-0.433
-0.356
-0.015
0.065
-0.014
0.144
0.003
0.019
0.059
-0.165
-0.105
-0.120
0.026
0.000
0.044
-0.046
-0.030
0.016
-0.019
-0.008
-0.019
-0.789
0.048
-0.055
onchild getchild dunem lplqk dincindrk
0.101
0.134
0.014
-0.174
0.239
0.085
-0.005
0.221
0.009
-0.002
-0.046
0.170
School of the Built Environment

• 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

England 19912001-11 2001-11 2001-11
2001 PrevProj NewProj GAM
Growth% 7.1% 9.9% 7.7% 7.3%
Number pa 135,688 202,329 157,965 149,232
Growth%
Number pa
2011-21 2011-21 2011-21
PrevProj NewProj GAM
10.3% 10.0% 7.9%
232,960 220,528 173,230
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

Household Growth Comparisons between Models by Region 2011-21
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
NE YH NW EM WM
Region
SW EE SE GL
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!
PrevProj
NewProj
GAM

.4000
.3500
.3000
.2500
.2000
.1500
.1000
.0500
.0000
1990
Headship Rates for 20-29 Year Olds, Selected English Regions
1992-2012
1995 2000 2005 2010 2015
Year
NE2029
EM2029
SE2029
GL2029
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

Estimated number of new households forming, by tenure of first destination
2002-2010 (000s)
Tenure
Own
Social rent
Private rent
2002-06 avg
118
92
190
2007
131
76
183
2008
72
44
229
2009
40
48
208
2010
55
71
268
2011
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
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

• 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

Household Growth Response to New Build
Impact
On Scenario
Gloucs Gloucs only low
WoE Glouc, WoE & Adj Low
SEGAS G, WoE, Adj & SEGAS low
SEGAS All South Low
England All England Low
2016
0.21
0.29
0.27
0.26
0.15
Gloucs Gloucs only High
WoE Gl, WoE, Adj High
SEGAS Gl, WoE, Adj & SEGAS High
SEGAS All South High
England All England High
0.21
0.29
0.28
0.26
0.14
London London V High
England More SR (AH)
0.38
0.77
2021
0.97
0.96
0.91
0.87
0.78
1.08
1.00
0.95
0.90
0.83
0.95
0.69
School of the Built Environment
2031
0.77
0.87
0.80
0.81
0.87
0.70
0.87
0.80
0.82
0.85
1.00
0.77

• 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

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
Gloucs only High
Gl, WoE, Adj High
Gl, WoE, Adj & SEGAS High
All South High
All England High
London V High
More SR (AH)
2016
0.42
1.24
0.70
0.91
0.98
0.44
1.27
0.73
0.95
0.98
-0.19
0.99
2021
0.73
0.86
0.70
0.74
0.99
0.75
0.84
0.70
0.73
0.99
0.39
0.98
-0.10
0.99
2031
0.18
0.19
0.05
0.17
0.98
0.09
0.24
0.04
0.16
0.98
School of the Built Environment

• 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

• Higher
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
(+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)
•
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

• Ending
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
activity would worsen affordability to buy (-1 to -7%) but net effect on household growth/formation slight
• Relaxing planning controls over
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
•
(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

• 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 acc ess 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 199 0’ 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 house hold formation and homeownership; young immigrant cohorts in Los Angeles and Toronto compared’, Ethnic and Racial Studies , 35:7,
1311-1337.
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