Monday, June 20, 2016

Increased Living with Parents among 18-34 Year Olds and the Implications for Future Housing Demand

by Daniel McCue
Senior Research Associate
The rise in the number and share of adults living with their parents is a well-documented trend that became increasingly apparent after the Great Recession.  It is also increasingly meaningful to housing markets as household growth slowed markedly in this period, largely as a result of fewer young adults forming households. And it is a trend that is ongoing. A report issued by the Pew Research Center found that for the first time in the modern era a higher share of adults age 18-34 are living with parents than living with partners or spouses.

In light of this information, one might conclude that as long as the rate of young adults living with their parents remains high, household growth will continue to be depressed. But even as the rate of adults living with parents continues to grow, the Census Bureau’s Housing Vacancy Survey also reported that household growth again increased in 2015 and has been accelerating since 2012.  If young adults―who are responsible for the majority of new household formation―are still living with parents at ever higher rates, how is it that household growth is picking up?  The answer lies in the shifting age distribution of millennials, who have now begun to exit the time of life where living with parents is most common and enter older ages where living with parents is less common.  With this shift, we can maintain today’s higher levels of living with parents among young adults and still have an acceleration of household growth.     

The 18-34 year old age group is also a very wide grouping for looking at living with parents, as the rate drops sharply across these ages.  Rates start at 50 percent among adults age 20-24 and drop down to 15 percent for adults age 30-34 (Figure 1).  This pattern basically mirrors the growth in headship rates (rates of being the head of an independent household) that rise most steeply for adults in their 20s. 

Source: JCHS tabulations of US Census Bureau, 2014 American Community Survey 1-Year Estimates.

In addition to being higher, rates of living with parents have also increased much more for the younger set of adults aged 18-34 (Figure 2).  According to tabs of the ACS, rates of living with parents in 2008-2014 grew most for 20-24 and 25-29 year olds, each up by roughly 6 percentage points.  Increases taper off with age from there, dropping to 4 percentage points for those age 30-34 and 2.5 percentage points for the age 35-39 year old age group.  Similarly, household headship rates dropped most for the younger age groups under age 30 and less for those older than age 30.

Source: JCHS tabulations of US Census Bureau, 2014 American Community Survey 1-Year Estimates.

Meanwhile, over the past decade the majority of population growth for young adults was skewed towards the younger side of this 18-34 year old group as the millennials replaced the smaller, generation-X population in the 20-24 and 25-29 year old age groups.  In addition to being the ages where rates of living with parents are highest, the sharp increases in living with parents that occurred among these age groups has meant that far fewer households were formed compared to what would have been expected given the magnitude of population growth.  Tabulations from the CPS show that declines in headship rates over 2005-2015 for the 15-19, 20-24, and 25-29 year old age groups reduced household growth by 1.7 million below what would have occurred under constant rates. 

Over the next 10 years, the aging of the millennial generation will shift the bulk of population growth from the 20-24 and 25-29 year old age groups to the 30-34, 35-39, and 40-44 year old age groups (Figure 3).  At these older age groups, changes in rates of living with parents and overall household headship have been much more moderate and remain closer to recent historical levels. 

Source: JCHS tabulations of US Census Bureau, United States Population Estimates and 2014 Population Projections.

This all suggests that future expected population growth in the 30-44 year old age groups will translate more directly into household growth over the next decade, even if living with parents continues to remain high for 20-somethings.  The pick-up in annual household growth levels since 2012 as reported by the Housing Vacancy Survey is a sign that this has begun.

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