Young Adults Living in Parents' Basements: Causes and Consequences

R E S E A R C H R E P O R T Young Adults Living in Parents’ Basements Causes and Consequences Jung Choi Jun Zhu Laurie Goodman January 2019 H O U S I N G F I N A N C E P O L IC Y C E N T E R A B O U T T H E U R B A N I N S TI T U T E The nonprofit Urban Institute is a leading research organization dedicated to developing evidence-based insights that improve people’s lives and strengthen communities. For 50 years, Urban has been the trusted source for rigorous analysis of complex social and economic issues; strategic advice to policymakers, philanthropists, and practitioners; and new, promising ideas that expand opportunities for all. Our work inspires effective decisions that advance fairness and enhance the well-being of people and places. Copyright © January 2019. Urban Institute. Permission is granted for reproduction of this file, with attribution to the Urban Institute. Cover image by Tim Meko. Contents Acknowledgments iv Executive Summary v Young Adults Living in Parents’ Basements 1 Why Are Young Adults More Likely to Live with Their Parents? 4 Marital Status 4 Race and Ethnicity 6 Income 8 Employment and Education 10 Housing Costs 11 Oaxaca Decomposition 17 What Other Factors Explain the Increase of Young Adults Living with Parents? 17 Tight Credit 18 Student Debt 18 What Are the Long-Term Consequences of Living with Parents? 21 Future Headship and Homeownership 21 Housing Value and Mortgage Principal 25 Conclusion 27 Note 29 References 30 About the Authors 31 Statement of Independence 32 IV A C K N O W L E D G M E N T S Acknowledgments The Housing Finance Policy Center (HFPC) was launched with generous support at the leadership level from the Citi Foundation and John D. and Catherine T. MacArthur Foundation. Additional support was provided by The Ford Foundation and The Open Society Foundations. Ongoing support for HFPC is also provided by the Housing Finance Innovation Forum, a group of organizations and individuals that support high-quality independent research that informs evidence-based policy development. Funds raised through the Forum provide flexible resources, allowing HFPC to anticipate and respond to emerging policy issues with timely analysis. This funding supports HFPC’s research, outreach and engagement, and general operating activities. This report was funded by these combined sources. We are grateful to them and to all our funders, who make it possible for Urban to advance its mission. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Funders do not determine research findings or the insights and recommendations of Urban experts. Further information on the Urban Institute’s funding principles is available at www.urban.org/support. E X E C U T I V E S U M M A R Y V Executive Summary The share of young adults ages 25 to 34 living with their parents increased from 11.9 percent in 2000 to 22.0 percent in 2017. This translates to more than 5.6 million additional young adults under their parents’ roofs between the two years. This trend matches the decline in young adults’ marital rate (from 55.3 percent to 40.0 percent) during this period. Increases in rents and student debt plays an important role in young adults’ decisions to stay with their parents. Metropolitan statistical areas with higher unemployment rates experienced a greater increase in the share of young adults living under their parents’ roofs. This early life choice could have long-term consequences. Young adults who stayed with their parents between ages 25 and 34 were less likely to form independent households and become homeowners 10 years later than those who made an earlier departure. Even if they did ultimately buy a home, young adults who stayed with their parents longer did not buy more expensive homes or have lower mortgage debts than did young adults who moved out earlier, suggesting that living with parents does not better position young adults for homeownership, a critical source of future wealth, and may have negative long-term consequences for independent household formation. Young Adults Living in Parents’ Basements Millennials living in their parents’ basements or their childhood bedrooms and giving out tech advice may seem cliché, but the numbers support the idea: millennials are delaying homeownership and are increasingly remaining in their parents’ homes. Today’s young adults are less likely to move out and form independent households than those of the same age in previous generations. The headship rate of young adults ages 25 to 34 decreased from 47.0 percent in 2000 to 41.2 percent in 2017. Our previous research on millennials focused on why millennials are less likely to become homeowners; we showed that between 2000 and 2017, the homeownership rate of young adults decreased from 45.4 percent to 38.4 percent (Choi et al. 2018). This research investigates another important housing c