Generation live-at-home topped the headlines this week, as young people living with their family members is at a historic high not seen since 1940
An FKD Feature exclusive

Millennials are hanging out at Mom and Dad’s house for as long as they can, and it’s largely due to a number of factors, one of which is a shortage of affordable starter homes. Today, 40 percent of millennials live with their parents, siblings, or other relatives, with most analysts blaming economic barriers to household formation.

Generation not yet

In reality, as we covered in an article earlier this week, affordability is not the only reason behind millennials living at home, There are formidable cultural shifts that have occurred in recent years that have altered the traditional timeline for reaching adulthood. Overall, as life expectancy has gone up, people are growing up slower, and delaying many of the milestones that constitute a regular adult life.

We put off moving out, marriage, and procreation because it’s become socially acceptable and mainstream to wait until you’re well into your 30s to embark on those life-altering endeavours. As a result, many of us are still living at home relishing in what remains of our youth, and building closer relationships with our parental units than previous generations.

Let’s talk economics

Beyond our bouts with immaturity and our desire to remain Toys“R”Us kids forever, there are compelling economic reasons that are keeping millennials confined to living with blood relatives. A few years ago, you might have pinned the blame squarely on a tough job market, but that’s now improved a great deal. Although millennial incomes still remain low, we face yet another problem: the lack of affordable starter homes in nearly every metro area. 

The glut of luxury housing everywhere

It appears that developers love building copious amounts of amenity-rich housing all over the country, seemingly targeting the same affluent demographic. Whether it’s apartments in cities or housing communities in the far-flung suburbs, developers are over-building in the top of the market. High land prices mean that developers usually build high-end products in order to maximize profit.

There has been such a rush of high-end housing inventory built all over the nation that prices are starting to come down. But, affordable housing, for buyers or renters, continues to go up in price, as there are too many buyers chasing too little inventory.

It sounds silly, but what we end up with is a mismatch between demand and supply. Millennials need starter homes and apartments, and what is available is far too expensive for them. Add in tougher requirements for getting approved for a mortgage, and you’ve largely explained why kids aren’t venturing out and running their own households.

The problem with low household formation

The United States is a consumption-driven economy, and perhaps nothing primes that pump as much household formation. When people leave their parent’s nest, they embark on a spending spree that powers economic growth in many sectors. Right now, with so many young people living at home, we’re missing out on a great deal of economic potential.

In the end, the economy is damaged because of millennials’ depressed incomes, which prevent them from leaving the house, which in turn decimates household formation, which then leads to low economic growth. It’s a ring-around-the-rosey from hell that our policy makers will have to confront in the near future.

If we want to set the stage for healthy economic growth, empower millennials to grow up and move out of the house. Needless to say, we may need some prodding to pull the trigger.

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Posted 12.22.2016 - 01:23 pm EDT