Why can't today's young adults leave the nest? Blame high housing costs
cnbc.com
cnbc.com
How much of this is actually new as far as income vs costs, and how much of this is unwillingness to make sacrifices that older generations did? For example, in my 20s (20 years ago), it was very common for 20somethings to live in shared housing with 2-3 roommates. They would share kitchens, fridges, everything. And these houses weren't even that great to begin with.
Is the younger generation less willing to do things like that? Or move further out, or move to a smaller town where the prospects are better? Are the prospects actually there in smaller towns? They might be more with remote work now.
Like I barely hear about families moving to different cities for a job anymore when that was more common growing up in the 80s.
We're not "not starting families", like its a choice. It's not economically feasible.
The prospects in small towns are atrocious, that's why they're small towns. If you want to see what a post-apocalyptic world is like, just drive through a random small town in the midwest. There's a downright spooky vibe to them, they're sprinkled with abandoned and rotting buildings.
The dream of remote work is largely dead, or at least back to pre-pandemic state. Only top tier talent can get remote work, there's a ton of competition for those jobs.
That's a quote from the first season of True Detective. It's stuck with me because it's almost exactly how I've always described the small midwest town that I grew up in.
I started working part-time remote around 2010, and full-time in 2016 until June of 2023. I stayed close to tech hubs because I never felt like it was a particularly safe arrangement.
1. https://bostonagentmagazine.com/2018/07/11/young-adults-choo...
The instinct to assume that trends affecting entire generations of people are "personal choices" rather than economic issues is a common delusion that usually comes from listening to the messaging of companies responsible for these problems when they are discussed
https://www.pewresearch.org/ft_18-01-12_sharedliving_feature...
> Shared accommodation is on a roll. Traditionally aimed at students in search of cheaper rents and conviviality, it is now attracting young working people looking for flexibility and quality solutions to the increasingly restricted access to home ownership.
> Amandine Cloot and Paolo Leonardi are journalists with the Economy division. They came into the studio to talk about young people's current real estate real estate.
> Translated with DeepL.com (free version)
They make it sound like it's a choice.
It's getting clearer to me everyday that journalists are just parroting bullet points from "experts". Just like they call on temporary employment agency to talk about labor law reforms. We are fucked.
In my country they are trying to transform social housing (housing built by the state for low-income households or people who can't work anymore) into a investment product. They try to get deals with private investors to finance the buildings in exchange of interests on the rents or monopolies on services. Social housing can't bring in enough money to be an investment product. This won't end well.
You can see someone that has what you want and either a) work towards it, or b) complain.
There's always a mix of both, but b) is very loud right now.
https://fred.stlouisfed.org/series/LNS11300060
That seems like very little change.
More importantly, why is that a reasonable expectation?
We need to stop bailing out the housing market and incentivizing home purchases — this is the only reason that it’s rational for people to do this.
With zoning and building codes we've just made it a lot more expensive to build housing. Just building codes probably increase the cost of building an apartment by 1-2% per year, and with zoning added in that could lead to 2-3% appreciation above inflation and wages which over 30 years adds up to quite a bit.
In my experience this is still the norm in high CoL west-coast cities. Single people living alone are the exception rather than the norm. Couples tend to rent a 1- or 2-bedroom.
Interestingly this seems to still be true for many highly-paid young people who could easily afford their own place but end up with roommates to save up money. No idea how representative my sample is.
That's how people live in their 30s now. People in their 20s aren't developed enough in their careers to afford that sort of living.
Considering that the costs of everything have not only skyrocketed but wages were stagnated for decades (https://www.pewresearch.org/short-reads/2018/08/07/for-most-...) before declining (https://www.axios.com/2023/09/12/real-incomes-fell-last-year...) - the largest decline in real wages in 40 years, and that the standard of living for Americans has also been declining for years, long before the recent massive hike in inflation, I doubt it has much if anything to do with an unwillingness to make sacrifices. In fact, it seems like young adults today are being forced to make sacrifices left and right. In the 1980s young adults had homes, full time employment, cars, health insurance, babies, pension plans, $60,000 less debit from their student loans, and hope for the future.
It's pretty smart for young adults to live somewhat near family because they can get a lot of help and support that way, but the fact that they can't even afford to leave their parent's home is a very bad sign for our economy. When kids move out they pay for a ton of new things like furniture, cars, silverware, irons, vacuum cleaners, towels, streaming services etc. When they're at home there's no need at all to buy a lot of things because their parents already have them.
What's your interpretation?
Case-Shiller is not adjusted for inflation. In addition, it does not take into account interest rates. Until recently, mortgage rates were extremely low. It takes less resources to pay the mortgage on a $1,000,000 house at 3% interest than it does to pay the mortgage on a $250,000 home at 19% interest (which is where interest rates topped out at in the 1980's).
Interest rate: in 2003 the interest rate was in the high 5's. Today it's in the mid 6's. So let's call it a wash.[1]
What I'm saying is, today someone is buying the same house, at roughly the same interest rate as someone twenty years ago except that today 1) the house is twenty years older, 2) it's also about 30% more expensive after adjusting for inflation.
I grant that means the person needs fewer than 2x the resources, but my point still stands.
Mechanization of labor has destroyed the economies of small towns. My wife's father is a farmer, and the small town she grew up in shrinks every year as young people leave. The families that remain buy up all the available land and are able to farm it all. Their only limitation is availability of land. Those without land may eek out a meager existence dressing hair or something, but in general it's not necessary for humans to do anything.
The costs of housing prevent people from moving to other cities. I could earn double my current salary by moving to California, but that wouldn't cover the cost of living differential. This actually reduces net economic output, since I and many others are not working at places where our output would be highest. Please read the article "The housing theory of everything" by Bowman, Myers, and Southwood.
The unfortunate reality is that income is much lower now than when you were young. Rent seeking behavior has become the path to wealth, and rent seeking reduces net economic output. You should listen to Peter Turchin's discussion of wealth inequality and the wealth pump, it's very enlightening.
Joking right ? Where I live, you cannot get a 1 bedroom apartment for less than $2000. When I moved out on my own, one year's rent was 10 to 15% of my yearly salary, and that was a 2 bedroom. In today's dollars, my salary was 50,000. I could have easily bought a single family house at the time.
Based upon those numbers, my rent would now be a bit over 50% of my salary for a 1 bedroom. Never mind even thinking about buying a house if you are young.
Also Medical Insurance in the US comes into play. Back then, my insurance contribution was almost nothing. Now it would be around 10% of my salary, if I even was allows to get Medical.
In other words, all other things being equal, someone today is being asked to sacrifice twice as much with respect to housing.
If the goal is to get young people into houses, that line needs to go down substantially. That's much easier said than done when many people's wealth depends on that line being high.
1. https://www.longtermtrends.net/home-price-median-annual-inco...
That is the case in countries with both access to cheap food and free education: i've heard that Berkeley used to cost 100$/year in the 70s.
Also medical care costs are balooning everywhere (even where it's socialized). I'm not talking about huge cost you can read about US healthcare: when you're young, you will probably be lucky enough to avoid needing critical healthcare, but the price to do regular checkup and preventive care is higher than it was, everywhere in the world. That will have a cost on everybody in the near future imho.
That kid is now an adult and is highly educated, has 2 jobs, and can't reasonably afford to rent their own place. They might be married and have children of their own now if things were the same as when we were younger.
All the young people I know would gladly trade what they have now for the meager "sacrifices" of older generations.
The exact same apartment is listed today for over four times what I was paying then. The same job I had then now pays 25% more. Rent for the same apartment is more than that job's entire gross pay.
10 years ago in Stockholm I was renting a small flat 3 stations away from central station for about 9-10k SEK, the same flat nowadays is almost 2x that rent.
It's insane and happening in every major city it seems...
Ah yes the avocado toast theory. What makes you think that people have changed so much in the last 20 years?
The people didn't change, they are mostly the same. The cost changed. It's now no longer sustainable for many or no longer worth it. Renting with roommates means you will see 10%+ rent increases a year in major US cities now. The greed of the landlords cannot be satisfied. Over time this pushes people back home that cannot stay on the fast moving economic treadmill.
I can't fault my neighbors for deciding to stick around in their nice, large homes with bedrooms to spare -- especially if they've paid off their mortgages or renegotiated during the pandemic. That said, I can't help but feel something is wrong with this picture.
Why isn't the neighborhood filled with young families? And when these older folks do finally move, will young families be able to afford the increasingly expensive mortgages? Looking at the Case-Shiller index, it's scary -- almost double the pre-2008 peak![1]
Many of my contemporaries moved from their parents home not because it was cheap, but because they wanted to be in another location.
If they were staying in the same area, they’d often live at home until marriage, etc.
Because why live in a small apartment when you can live in a much bigger house that even comes with various other support, and cooked meals?
Some would do that and even pay rent to the parents that was equivalent or higher than an apartment would be.
Demand is also an interesting one, the population continues to increase and every year a new, larger, cohort of people enter the housing market. Many are seeking to live in the relatively few areas that have strong, dynamic labor markets, and are willing to pay a higher share of income to achieve this.
A lot of housing markets have experienced this effect on both supply and demand and prices have not decreased in line with what the basic models predicted.
> Housing prices have a significant impact on a family's decision to have children, according to a new study by Lisa Dettling and Melissa Schettini Kearney. In House Prices and Birth Rates: The Impact of the Real Estate Market on the Decision to Have a Baby (NBER Working Paper No. 17485), they find that a 10 percent increase in home prices leads to a 1 percent decrease in births among non-homeowners in an average metropolitan area. However, the negative effect among non-owners is offset by a 4.5 percent increase in births among current homeowners, who are now wealthier. The total fertility effect of an increase in house prices varies across demographic groups, largely because their rates of homeownership differ. The authors conclude that "house prices are a relevant factor in a couple's decision to have a baby."
https://www.nber.org/system/files/working_papers/w17485/w174...
(look to South Korea if you want to see the future: https://time.com/6488894/south-korea-low-fertility-rate-tren... ["The number of babies expected per woman probably dropped this year to 0.72 and will continue to fall through 2025, when it’s expected to reach 0.65, the statistical office said Thursday in its latest population forecasts. South Korea already has the world’s lowest fertility rate at 0.78 as of 2022."])
Current US mores ("be able to afford house, then start family") are driving the housing price:fertility correlation.
But those mores can change, say, to become more aligned with the non-US, multi-generational world.
And honestly, I think that would be a net positive on US culture.
https://www.axios.com/2021/11/24/more-americans-childless-pr...
https://journals.plos.org/plosone/article?id=10.1371/journal...
https://www.pewresearch.org/short-reads/2021/11/19/growing-s...
https://thehill.com/opinion/immigration/4141600-pro-natalist...
So we are told, but this reeks of pretend-helplessness, an excuse not to even try. The Czech Republic raised its fertility rate from 1.1 in 1999, to 1.8 in 2021 [1,2], so it is empirically possible.
[1] https://stoppopulationdecline.org/re-familisation-czech-repu...
[2] https://data.worldbank.org/indicator/SP.DYN.TFRT.IN?location...
40%-50% of global pregnancies are unintended annually. When contraceptives are readily available and women are empowered, the fertility rate falls. Is there enough fiat to change that? There is a light cone based on aggregate productive labor participation, and it shrinks as the population shrinks.
https://www.unfpa.org/press/nearly-half-all-pregnancies-are-...
https://ourworldindata.org/fertility-rate#what-explains-the-...
"We shouldn't try because it won't work. We know it won't work because there are so few examples of it working."
Most countries used to have above-replacement fertility. At least some countries that implement natalist policies recover fertility. While not exactly a reversal of low fertility, Israel is an example of an advanced economy with above-replacement fertility.
Evidence points overwhelmingly towards this being a fixable problem, if only we try. Certainly few other problems are approached this way - we don't give up on reducing CO2 emissions or plastic pollution just because we've so far not succeeded. One only approaches a problem this way if one doesn't want to solve it.
We require a return to maturity and responsibility and clear, focused thoughts across the board. We need to have higher standards for truth and accurate information and accurate statistics. We need less climate fear-mongering and doom-scrolling. The world and civilization are not ending yet many youth are blasted by endless propaganda and negativity from a young age.
We need to be smart and fixated on what’s true again, in all areas. Truth over lies and truthful statements and processes over half-truths or lies.
So it’s a values and wisdom thing, which has been absent or pulled out from beneath people by the sudden subversion of reasoned and nuanced thinking by easy access to qualitatively cheap information and sound bites.
I think the appetite for nuance will come back and this will represent a return to truth and consequently to more emphasis on family and especially the nuclear family.
I believe those costs will decrease in real terms with time. Note that we were also higher up discussing staying home longer precisely to facilitate more affordability for the individual, an additional 3-5 years saving and investing into career and skills will help most individuals in this area significantly if they can do it.
How many average metropolitan areas experienced 10% increases in home prices? That’s a lot to decrease births by just 1%
> Not leaving so soon and investing into your career and saving up money will eventually enable more people to choose parenthood.
That might be true if it was a choice made to save money but instead it's not a choice and there isn't any money.
How do you know this?
> That might be true if it was a choice made to save money but instead it's not a choice and there isn't any money.
I’m betting savings rates will go up.
[1] The effect of immigration shocks on native fertility outcomes: evidence from a natural experiment - https://izajodm.springeropen.com/articles/10.1186/s40176-018...
These results suggest that immigration shocks do have implications for the fertility decisions and outcomes of natives, though these tend only to be temporary and short-lived. There therefore appear to be little long-term or sustained consequences for the fertility of natives from governments pursuing labour augmenting strategies through more open immigration policies.
Immigration to the US is at its highest level since the 1910s, in both absolute and relative terms: https://cis.org/Graph-Immigrants-US-Number-Percent
This is not why the US is, or more accurately some states in the US are, banning abortion. It is very much a moral thing for them: they want to punish sex before marriage, especially for young girls, or maybe they really do believe fetuses are sentient, but it definitely isn't about promoting population growth.
America has had a higher immigration rate than most of Europe for a couple of hundred years now.
I think that’s the popular narrative, but the real reason is population decline. Someone somewhere must understand the implications of a small number of people in the US. Not just because there are fewer taxpayers but there also fewer people to support the logistics of war. I dont like the idea but I think that is part of the reason.
Europe is not the US, it’s not a country, and is not made of non European immigrants - though all Europeans are closely related. And that means that population decline is already causing political and social tension. Because to maintain the economy people from the outside are coming in and locals dont like it. There is no European country without tension. Not something I like either.
The only way to solve these issues is to make it possible for people to have children and family life - traditional or not - of their own accord.
Corporate capitalism doesnt allow for that. It causes market anomalies - ie people unable to even dream of owning a house, it causes mental health issues due to forcing people to sit in office settings with office politics, and it damages small businesses. Corporatism is damaging to national security and social cohesion.
I think the way to solve many of the population and independence of the younger generation is an aggressive development of small to medium sized businesses. Free people are more likely to want a family in my view. Basically, we need a return to actual capitalism.
Well, that's where you're wrong (with respect to housing in the USA).
Municipal zoning laws mean that houses are not getting built. Apartment growth is not keeping up either. Nor is condo growth. In the places with jobs, there is no available housing.
This lack of housing is what is keeping houses at top dollar in spite of the mortgage rate tripling over the span of a year.
We could afford a house, but the more we look at it, the worse a financial decision it seems. The homes are way more expensive then they are worth. The mortgage would be more than double our rent.
The issue, as far as I can tell, is that people treat their homes like investments and want investment-like returns.
> "While the majority of 8th grade Gen Xers in the 1990s had dated, tried alcohol, and worked for pay, only about one in four 8th grade Gen Zers had done the same in 2021. The number who had had sex by the spring of 9th grade went from nearly 40% in the Gen X era to less than 15% among Gen Z".
That is not related to housing costs. Previous generations seemed to grow up quicker, Gen X certainly did.
Towns within an hour of a bigger city, but small enough where the real estate is still reasonably priced.
Maybe when this young adult generation starts to consider kids, this option might become attractive.
That doesn't make sense to me. What sort of forces do you imagine will cause one school to have better students than another, consistently for decades?
Not, mind you, because poor kids are exceptionally poor students on their own, but because their parents tend to have less time and money to support them.
Not every job also supports a remote work lifestyle.
This is more rare than you would think, depending on your definitions of "bigger city" and "reasonably priced". It's definitely more rare than it used to be.
Part of that is the increase in housing prices, as detailed in this and other articles. But part of it is a contraction of what's "within an hour", due to crumbling public transit infrastructure.
That kind of demographic shift takes a generation or more to really occur. It hasn't even been 4 years since remote work took off with the pandemic.
Haha. In my EU region those towns, and even villages around those towns are outpriced. What you can afford with a garden, 2-3 rooms you need to look in end of world villages, and those building are from the 60-70s.
Seeing this, I understood it will be worth to study hard and learn a lot, then go for a typical job.
But the equation does not hold now.
What carrots will the next generation learn to follow? I am afraid it will rather be the stick.
What should someone do in that case? Move to a cheaper area? It isn't all that obvious
There is some level of parental wealth that will allow children to live here, even in the absence of a job that can pay the mortgage. This tends to be Atherton- or Woodside-level wealth.
The USA doesn't have a residency system, so this is true throughout the country. Some form of rent control (inheritable) or a hukou system could change that, but I don't see it happening for awhile, and kids who didn't grow up "here" would complain that they weren't allowed to live in that place (either via a legal restriction or a system that raises the barrier of entry for new residents like rent control).
Go into plumbing. Plumbers around here in my small rural area charge $200 just to show up. It's probably more in the bay area.
Another perspective could be: what’s so bad about people taking longer to mature? In a way it points to the possibility that we have evolved to a society that allows children to be children for longer. The real problem is that biologically their bodies are screaming for reproduction which becomes confusing and stressful. Perhaps in the future we will deal with this in creative and healthy new ways
Y'all mind if I use this as the name of my next album? It's got some long lost Judas Priest vibes about it.
The housing equation could shift quickly as boomers die or move to assisted living facilities.