A potentially worrying trend is emerging among young adults. Instead of getting a job and moving to the big city after graduating, many return to their childhood homes. About 1.5 million more adults under age 35 live with their parents today than a decade ago. That’s a 6.3% jump, more than double the growth rate of the overall young adult population.
The problem is affordability. Over the past decade, urban rents have risen about 4% annually, while wages for full-time workers have risen just 0.6% annually. That means it’s harder than ever to live in a big city on the typical salary, especially if you’re a recent graduate without much work experience.
The situation is even more challenging for aspiring homeowners: the median home price in the US increased around 90% in just 10 years, or more than 6% each year. And as prices rise — the average home sells for more than $400,000 now — so do the ages of homebuyers. The average first-time home buyer in the US is 38 years old, up from 31 about a decade ago.
Why is the rent so high?
Simply put, there is not enough housing. As an economist, I know that when demand increases faster than supply, prices have to increase. And supply is severely limited in the places where people most want to live: big cities like New York and San Francisco.
In most of these cities, planning and zoning laws prevent developers from building enough to meet demand. For example, rezoning a parcel of land from commercial to residential often requires mountains of paperwork. And in many cities, neighbor objections can stop a proposed development. These are just two of the many obstacles that local governments put in the way of home builders.
One city that tried something different is Austin, Texas. After deliberately relaxing its zoning laws a few years ago, Austin saw a housing construction boom. Rents fell 10% in one year and up to 22% in two years after that change. By making construction easier, Austin made it cheaper to live there.
I don’t think it’s a coincidence that Austin has a much lower share of young adults living with their parents than many other cities. Only 6% of working adults in the Austin metro area live with their parents, according to one analysis, compared to nearly 14% in the San Antonio metro area and 20% in the Los Angeles metro area.
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The pros and cons of living with ‘rentals’
An obvious advantage of living with parents is that they tend to charge below market rents, or nothing at all. That makes it easier to save for a deposit on a house, helping young adults get on the property ladder sooner than they would otherwise. In fact, homeownership rates among 25- to 34-year-olds have increased slightly since 2016.
However, there are also potential downsides, particularly when it comes to socializing. Living at home with parents can make it much more difficult to meet new people. This, in turn, could help partly explain why Americans marry and have children later in life. These delays may not seem important, but they can make people feel behind in life, which can affect their health and well-being.
I also wonder if living with parents is indirectly making young adults unhappier at work. This is because older adults often live far from urban centers where young people are more likely to find jobs directly related to their degrees. Job satisfaction rates are substantially lower among 18- to 29-year-olds than among the rest of the workforce.
A problem for all of America
The housing shortage is not just a problem for young adults. A recent analysis I found insightful was titled “The Housing Theory of Everything.” He argued that the issue helps explain at least some of the current malaise in the U.S. economy.
For example, when people cannot live and work where they want, they cannot fully use their talents. That contributes to the relatively slow productivity growth the United States has experienced in recent years.
Likewise, if people cannot live in areas where they can meet and work with like-minded people, they have fewer opportunities to share ideas, which can hinder innovation.
And if the housing shortage is indeed encouraging young adults to delay having children, it could make it harder for the US to fund Social Security and other government programs in the future.
Making it easier to build new homes in places where people want to live and work could go a long way toward alleviating these problems. High rents are also likely to translate into high barriers to adulthood.
*Rohan Shah is an assistant professor of economics at the University of Mississippi in the Institute for Humanitarian Studies.
This article was originally published in The conversation
