Nineteen million vacant homes. If there is a symbol of today’s economic troubles and a barrier to overcoming them, it is the 19 million American homes foreclosed on by banks and largely sitting empty, falling in value and producing no income for anybody.
I mention this because marriage and divorce are, economically speaking, matters of productivity. You don’t follow? Think about when you got out of school and got your first real job. It felt good, right? Suddenly you had money to spend. You could afford your own place. I mean, really afford it.
The same kind of rush comes when you start to co-habitate or, better still, get married and actually merge your assets. Twice the income and only 50% more in expenses. Hell, you can flog that extra microwave oven and duplicate DVDs on eBay. Unfortunately, the opposite occurs when you get divorced. In fact, it’s worse when you factor in the legal fees and the fact that the financial decisions are no longer consensual. Two microwaves used half as much equals lower capacity utilization. No judgments here, but rare is the family that doesn’t feel poorer after a breakup.
Which brings us back to those 19 million vacant homes. In the last 40 years there have been 63 million new homes built in the United States, more in fact than existed at the start of the period. How is that possible? The U.S. population only increased by 50% in that time. Buildings typically last for, what, 75 years so turnover of the housing stock can’t account for it. Nor can rising affluence, since even today only a small fraction of families own second homes.
The fact is the housing market, for the last 40 years, has been largely driven by couples calling it quits. No-fault divorce came into effect in the late 1960s, resulting in a permanently higher divorce rate. The average Canadian household in 1961 had 3.9 people in it; in 2006 it was down to 2.5.
We have come to the end of that cycle. Some time ago, the number of divided families stopped increasing. But homebuilders and their financiers didn’t get the memo. Encouraged by cheap loans, they kept on building based on past demand trends driven by divorce. However the demand – from people who could afford it – was illusory. This was a hard lesson for the development industry to learn – indeed, for all of us.
On the upside, no longer going to smaller and smaller household sizes helps make us all richer and more productive. Again, no judgments, but economics smiles on marital bliss.
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