As Demographic Headwinds Collide with Affordability Challenges, Household Growth Has Sharply Slowed

This summer, we published a deep dive demographic update, A Decade Divided, The Troubling Trajectory of Demographics – challenging the prevailing narrative around a severe housing shortage and outlining our expectations for household formation in the second half of the decade to slow to roughly half the pace of the first half of the decade, falling well below long-term averages.

Census data released since that publication has aligned with this anticipated slowdown in household growth. Per the Census’s quarterly Housing Vacancy Survey, year-over-year household growth slowed from 1.3% in 1Q26 to 0.9% in 2Q26, before decelerating further to just 0.6% in its 3Q26 data released this week. Excluding 2Q-3Q21 as those quarters faced difficult prior-year comps against the initial COVID boom in household formation, 3Q26’s household growth was slowest since 3Q17. In fact, a year-over-year growth rate slower than in 3Q26 has only occurred in 13% of quarters since 1970. And 70% of those weaker-growth quarters happened from 2007-2013 alongside the Great Financial Crisis. 
 
To be sure, we place much greater emphasis on more comprehensive Census surveys such as the annual American Community Survey (ACS) and the Decennial Census given HVS’s small sample size and higher margins of error. Still, the more-frequent nature of the quarterly HVS data can shed light on intra-year trends, and we believe the high-level message it is sending is largely accurate.  
 
Undoubtedly, the restrictive affordability backdrop has played a role, but lest we not forget that the underpinnings of U.S. population growth are all moving in the wrong direction – more deaths alongside the aging population, fewer births including five consecutive decades of below-replacement birth rates, and heavily restrictive immigration policy under the current Administration. 
 
Meanwhile, although the HVS’s overall housing vacancy rate of 10.6% as of 3Q26 remained below pre-COVID levels and long-term averages, it increased for a third consecutive quarter and was up 30 basis points year over year. As a reminder, the early-decade surge in household formation resulted in meaningful absorption of previously under-utilized housing stock, pushing vacancy rates lower through 2023, before grinding higher in recent years – which we largely expect to continue in the coming years. Notably, the absolute number of vacant housing units reported in the 3Q26 Housing Vacancy Survey (15.8 million) was up 3.8% year over year, which excluding 2Q-3Q21, represented the largest YoY increase in vacant housing units since 4Q08.
 
Overall, the past is clearly not the future when it comes to household growth in the U.S. And we continue to believe that claims of a many-million unit housing shortage remain wildly exaggerated.