Acolin, Lin and Wachter (2024): Why Do Young Adults Coreside with Their Parents?
Citation: Acolin, A., Lin, D., & Wachter, S. M. (2024). Why do young adults coreside with their parents? Real Estate Economics, 52 (1), 7-44. https://doi.org/10.1111/1540-6229.12467
Why Do Young Adults Coreside with Their Parents?
Young Adult Co-residence
at Historically High Since 1900
The co-residence share of young adults starts at 41 percent in 1900 and remains at this or a somewhat higher rate through 1940.
In the following two decades of post WWII rapid growth, the co-residence share of young adults drops from 46 percent in 1940 to 27 percent in 1960, a period in which homeownership rapidly rises and then stabilizes from 1960 to 1990.
After 1960, the co-residence share increases every decade, except for a slight decrease during the decade of 1990 – 2000 when homeownership rises.
Since 2000, the co-residence share has increased from 39.9 percent to 49 percent as of March 2021. This is about twice the pace of the previous four decades.
Housing Affordability at Historically Low
Rent-income and price-income ratios experience a rise from 1970 to 1990 before declining in the 1990s, a decade during which homeownership increases and the co-residence share decreases.
In 2000, measures of the burden of housing affordability start increasing until their decline with the subprime recession of 2009, but then rise again in 2010 and maintain higher levels than at any point since 1960.
By accounting for the response of marriage-childbearing decision to the decline of housing affordability in the co-residence choice of young adults, we attribute up to a quarter of the observed 9-percentage-point increase in the co-residence share between 2000 and 2021 to a decrease in housing affordability.
Blinder-Oaxaca Decomposition of Co-residence Share Change
When we account for the marriage-childbearing delays due to the decline of affordability, the contribution of affordability to the 9-percentage-point change of co-residence share increases to 2.3-2.4 percentage points.
Endogenizing the marriage-childbearing channel does not materially affect the contributions of endowments, except for unemployment and affordability.
Co-residence Choices Very Much Depend on Population Groups
The decomposition of co-residence change by race group shows that the increased co-residence among white young adults in the period of 2000 – 2021 is mostly attributed to marriage and childbearing delays and decreased housing affordability.
In comparison, the increased co-residence among minority young adults is attributed to these two factors as well as the change in employment, immigration, and educational attainment in the period.
Housing Affordability Becomes More Impactful on Co-residence Choices
The effect of affordability becomes more pronounced over time.
The rent-income model shows a local peak of the marginal effect in 2005 increasing again until 2015 and then flattening. In the price-income model, the coefficient increases from 2000 to 2015, then flattening as well.
The growing importance of affordability in the co-residence decision over time could reflect a potential increase in the metro dispersion of rent-income and price-income ratios
Where Affordability Matters Most
The effects of rent-income (price-income) ratio are stronger in the top quintiles of affordability measures, meaning that affordability is a more important factor in the co-residence decision in less affordable metros.
The finding of stronger affordability impacts in less affordable markets echoes the earlier finding of a more salient effect of affordability on co-residence in more recent years, reflecting more binding nature of affordability in high-price and high-rent metros in the years after the Great Recession.