Grown kids still stuck at home?

by Justin Fox

When the pandemic hit last year, young adults moved back in with their parents in a big way. Now the share of 18-to-29-year-olds living with parents and grandparents is back about where it was before COVID-19 arrived.

Still, you might think that 42.8% of 18-to-29-year-olds living in their childhood bedrooms or maybe the basement — which is the September percentage estimated by University of Maryland sociology professor Philip N. Cohen from Census Bureau data — sounds like a lot. And yes, by the standards of the six decades preceding the Great Recession, it really is. (One caution on all these statistics is that the Census Bureau wrestled with a big rise in the share of people not responding to its surveys last year, which may have done some strange things to its numbers.)

That the percentage has risen every decade since the 1960s is an indication that some long-run social forces have been at work. More young adults are attending college and thus delaying getting their own permanent lodgings, and in general the growing-up process has become more drawn-out. Immigrant families, of whom there are far more in the U.S. now than in 1960 and 1970, are more likely to embrace multi-generational living.

Still, the big jump from 2000 to 2010 had some obvious short-term economic causes too. In the latter part of that decade, huge numbers of Americans were entering adulthood amid the worst economic environment in 75 years, and they couldn’t afford to move out on their own. Things didn’t get much better in the 2010s as the job market slowly improved but inadequate housing supply in job-rich places plus tightened mortgage-lending standards kept making it hard for young adults to get their own places.

Another way to track this phenomenon is simply by counting how many households there are.

The number of households grew rapidly in the U.S. in the decades after World War II, initially because the war and Great Depression had held back household formation, and then because the many, many Baby Boomers started entering adulthood and moving out on their own. Household formation slowed as the growth in the young-adult population slowed and then began declining in the 1990s. But even as members of the giant millennial generation started entering prime moving-out age, household formation kept dragging, with the 2010s delivering the lowest percentage growth in at least 160 years.

So what happens now? The great pandemic return-to-the-nest has reversed, but there’s still a much higher share of young adults living at home than there was two decades ago. That might signify a lot of pent-up demand for housing, sort of like there was after World War II. And yes, household growth has been picking up in recent months, according to data gathered by Apartment List senior research associate Rob Warnock from the same Census Bureau survey as the living-with-the-parents statistics in the top chart.

But a key reason why household growth was so slow before the pandemic was that young people (and not-so-young people) couldn’t afford to move out on their own. With a 15.8% increase in rents nationwide over the past 12 months according to Apartment List and an 18.4% increase in home purchase prices according to Zillow, that’s still going to be the case for many. After spiking early this year, the National Association of Realtors’ Housing Affordability Index has fallen back to about where it was in 2018 — with rising incomes and low mortgage rates not enough to make up for the big increase in prices.

The move to remote work over the course of the pandemic has had its own perverse effects. It made housing more affordable for those who could keep jobs in expensive cities while moving to cheaper housing markets, and at first it reduced prices in expensive cities. But it made those cheaper markets much less affordable for the non-remote workers already there, even as prices have mostly recovered in the expensive places. “The affordability gains that were enjoyed in places like San Francisco and Seattle have been far more transitory than the affordability losses in places like Spokane and Boise,” said Apartment List’s Warnock.

Some of this should work itself out eventually, in part because it’s usually easier to add more housing in places like Spokane and Boise than in San Francisco or Seattle. But the case for a sustained housing boom over the next few years does seem to depend on there not being too much more of a boom in prices.

After that another significant development looms. According to the Census Bureau’s most recent projections, the number of Americans aged 25 through 34 will decline in the second half of this decade and after that grow extremely slowly for decades to come. What’s more, because these projections date from 2017 and don’t reflect subsequent drops in both birth rates and immigration, they’re probably on the high side.

The most obvious takeaway here is that demand for housing will slow. But who would have predicted half a century ago that the percentage of young adults living with their parents would rise so much? Slower growth in the young-adult population could, if it translates into slower growth in housing prices, conceivably enable a reversal of that rise.

Or not: It’s relatively easy to project demographic trends; it’s much harder to assess their impact on the economy or asset markets or politics or anything else. But the propensity of young people to move out of the parental home seems like an indicator worth keeping an eye on.

Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker.