In recent years, there has been a sizable uptick in the number of young adults living with their parents, a trend not seen since the Great Depression, nearly a century ago. This phenomenon inspired Susan Wachter, a Wharton professor of real estate and finance, to explore the underlying factors driving this marked shift in Gen Z and Millennial living arrangements.

The study, penned with co-authors Arthur Acolin from University of Washington and Desen Lin at California State University, Fullerton, found that about one-quarter of the nine-percentage-point increase between 2000 and 2021 can be explained by the decline in housing affordability, along with higher unemployment and delays in people getting married and rearing children.

Recent census data underscores the magnitude of this trend, with almost half of those aged 18–29 currently dwelling with their parents, marking the highest level observed since the Great Depression era (1929–1941). After the economic boom following the end of World War II, the number of young adults living with their parents dropped to a low of 27% in 1960. Since then, this figure has been steadily increasing, reaching 40% in 2000, 47% in 2019, and 49% in 2021.

Despite increasing salaries, Gen Z and Millennials can’t afford houses

“This is a resilient response to the very dramatic increase in rental burden. The average proportion of a person’s income that goes to rent was 25% in 2000, and it’s now 40%. That’s really a striking increase,” Wachter said.

Overall, the paper found that delays in getting married and having kids account for most of the increase in Gen Z and Millennials living with their parents. But the study focused on the period from 2000 to 2021, during which housing affordability significantly deteriorated. Since 2021, both household income and housing costs have risen, but rent and housing prices have outpaced wage growth. The study’s estimates suggest that the worsening affordability explains one-fourth of the increase in the share of young adults living with their parents in the aggregate and as much as twice that for minorities.

Notably, the connection between soaring housing prices and young adults residing with their parents is particularly strong in areas where housing costs are highest. “This reflects the deepening affordability crisis in the US,” Wachter said. “There would be two million more households occupying housing units but for this alternative solution of seeking financial shelter with one’s parents. So the excess demand for housing is lessened, which is a good thing in the current housing affordability crisis where there’s high demand and lack of supply.”

Broader economic conditions also affecting trends

From 1960 to 2000, the increase in young adults living with their parents was primarily due to fewer young men participating in the workforce. However, the decline in housing affordability has driven an even more rapid increase in co-residence in the past two decades, reaching 49% in March 2021 from 39.9% in 2000, according to the study. 

Moreover, this may explain why, despite a surge in co-residence during the Great Recession, the number of individuals living with their parents did not significantly decrease during the subsequent economic recovery period. “This is happening due to housing costs outpacing income growth,” said Wachter.

Looking into specific time periods, the study finds that both housing affordability and job market conditions played a key role in more people living together — both during the COVID-19 outbreak and earlier in the 2000s. For instance, during the pandemic when unemployment rates surged, more individuals resorted to living with their parents, akin to trends observed during the 2009 global financial crisis.

Affordable housing issues disproportionately impact minority groups

Moreover, the study highlights the disproportionate impact of housing affordability on minority populations, particularly Asian, Black and Hispanic young adults, who are more likely to live at home with their parents. “These groups tend to start off with fewer people living with parents but then see a quicker increase, surpassing the average for white non-Hispanic people,” said Wachter.

The findings further suggest that the increasing trend of young adults living with their parents might be influenced by factors related to wealth and limitations on borrowing money — a subject warranting further research. “Previous studies have shown that when housing becomes less affordable, fewer people can afford to buy homes. An alternative for those who can’t afford high rents or home prices is to live with their parents,” said Wachter.

[Knowledge at Wharton first published this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.