In the United States, there are now about 1.5 million more adults under the age of 35 living with their parents compared to ten years ago. This represents a growth of 6.3%, which is more than twice the overall increase in the young population.
The housing issue facing young people ultimately boils down to affordability. According to Forbes, over the past decade, city rents have been rising by approximately 4% each year, while the salaries of full-time workers have only been increasing by 0.6% annually. This means that living in major cities on an average salary is now more challenging than ever before – especially for recent graduates with little work experience.
Not only young people are struggling, even high-income earners in the United States are facing a cost of living crisis. A new report by Goldman Sachs reveals that about 41% of workers earning between $300,000 and $500,000 a year describe themselves as living paycheck to paycheck; while roughly 40% of those earning over $500,000 express the same financial hardship.
Rising prices are no secret. Basic necessities like a dozen large eggs currently cost around $3.60, jumping to as high as $6.22 in March this year, compared to a pre-pandemic price of $1.40.
For larger expenses such as home purchases, costs have skyrocketed to daunting levels. In August this year, the median home purchase price in the United States stood at $413,500, up from $328,900 before the pandemic hit in January 2020.
These soaring expenses have given rise to a new breed of super-rich “permanent renters” – according to a report by RentCafe, the number of millionaire renters in the United States doubled from 2019 to 2023. Currently, 1 out of every 11 millionaires with a seven-figure wealth now chooses to rent instead of buying.
Over the past decade, the median house price in the United States has surged by about 90%, with an average annual increase of over 6%. The age of first-time homebuyers has also increased, with the median age now at 38 compared to 31 about a decade ago.
Rohan Shah, an economics assistant professor at the University of Mississippi Humanities Institute, believes that the housing shortage is the biggest bottleneck. “When demand grows faster than supply, prices will inevitably rise. In places where people most want to live, such as major cities like New York and San Francisco, the housing supply is severely inadequate.”
Shah illustrates that rezoning a piece of land from commercial to residential use usually involves extensive paperwork. Additionally, in many cities, neighbor opposition can hinder proposed developments. These are just two of the many obstacles local governments set for housing developers.
However, Austin, Texas has tried a different approach. A few years ago, the city deliberately relaxed zoning laws, leading to a surge in residential construction. Within a year of the reform, Austin’s rental prices dropped by 10%, and within two years, they fell by 22%. By simplifying the construction process, living costs in Austin also decreased.
Such reforms have had tangible impacts: the proportion of young people living with their parents in Austin is significantly lower compared to many other cities, and this is not a coincidence. An analysis found that only 6% of employed adults in the Austin metropolitan area live with their parents, compared to nearly 14% in the Greater San Antonio area and 20% in the Greater Los Angeles area.
Shah further argues that the housing shortage is not just a problem for young people; it can also partially explain the current economic stagnation in the United States. For instance, when people cannot live and work where they want, they are unable to fully utilize their talents, resulting in a relatively sluggish productivity growth in recent years.