Aug 9, 2017
Millennials Stay At Home Longer. Is This A Problem?
Should we see it as a failure to launch or as a way of planning for a more successful launch?
We millennials love avocado toast for breakfast and mom’s lasagne for dinner — why else would we be living at home for longer than our generational predecessors?
The statistics are in: more and more young people are staying at home later into life. Almost a third of the population between the ages of 18 and 34 are either yet to leave their parents’ nest or have returned to live with them again — a phenomenon sometimes described as a “failure to launch.”
But the motivating factors are not simply a desire for meals or for laundry to be taken care of; nor are more adult motivations — doing advanced academic work, recovering from a severe break-up, saving for a house deposit, etc. — the entire picture, either.
The first thing to understand is this is not a monocausal phenomenon. The cause, unfortunately for those who prefer simplistic explanations, is likely to involve a complex web of factors. The truth is that young adults just aren’t moving out.
Although there is no standardized referent range, if we count those born from 1981 to 2000, the number of millennials in the U.S. would total around 88 million. This would also make them the largest living generation.
If such a sizable demographic cohort is choosing to stay at home for longer, how is that affecting the economy?
The Intergenerational Household
Is the intergenerational household as unique as the media makes it out to be?
Over the years, European, Asian, Middle-Eastern, and African cultures have all prominently included intergenerational living arrangements, with some of the cultures boasting a large number of multi-family households as well. The example that readily comes to mind in the modern age is the set of elderly parents living with their kids — the “granny” flat out in the back.
But intergenerational living need not involve an older family member, usually toward the end of his or her life, coming to live with their adult children. What we’re seeing now is intergenerational living from the opposite end of the spectrum: the young coming to stay with the old.
The times have certainly changed. Once upon a time a young person would leave school, get a job, get married, and start a family — all before 25. Yet for the first time in over 130 years, Americans aged between 18–34 are more likely to live at home than in any other living arrangement. If you live in Connecticut or New York then you may have noticed that more than 40 percent of millennials are living with their parents. In Australia more than 30 percent and in Europe a whopping 48 percent of millennials still reside in the family home.
Compare this to 1960, where 62 percent of U.S. persons in this age bracket lived with a spouse or partner and only 20 percent of young adults lived with their parents.
Beyond the statistics, it’s simply evident that we are marrying, having kids, and moving out much later in life. As you may expect, these trends are bound to have economic effects.
The Not-So-Empty Nest
According to Melbourne University researchers the central theme of living at home is security, both emotional and economic. Yet there are three significant economic trends which are placing pressure on our sense of security.
1. The urban migration boom
2. The higher education obsession
3. The gig economy
These factors appear to be reasonably representative of large structural shifts in the developed world, and incorporate a range of opportunities and challenges specific to millennials.
In my judgment, these represent both a partial cause and a partial result of millennials staying at home.
The Urban Migration Boom
For decades now, people have been flocking to urban centers, causing an explosion in the population of our cities. New York and London have over eight million residents a piece, and almost half of Australia’s population reside in just two cities, Melbourne and Sydney. Urbanization, the move form non-urban settings to urban ones, has created familiar issues of inefficiency, crowding out, two-speed economies, and affordability.
Population increases have led to the growth of the city areas themselves, which in turn have transformed family homes from being typical suburban living spaces 20 years ago into prime location residences. As cities have sprawled out or gone up, the competition for land has increased and the traditional family home has sharply risen in value — not just in terms of price but also in terms of utility. Access to transportation, shops, restaurants, and jobs is critical to the millennial ethos.
Recent research by the Grattan Institute showed that over 60 percent of new homes are nearly 20 miles out from city financial centers but over 80 percent of jobs were within 5 miles of these central business districts, causing large commute times and a dislocation of jobs and homes.
Have you experienced the joys of driving in L.A., London, or even Melbourne, during peak hours? You’re more stationary than in motion. The truth is our cities have become incredibly inefficient and congested. Poor city planning combined with large-scale migration are resulting in economic strains that are increasing the opportunity costs of moving out of the home.
Although unemployment is falling, we are experiencing low to negative wage growth in the majority of the developed world. Economic insecurity, falling business investment, and increased competition for jobs are adding pressures to real wages.
Courtesy of the urban migration boom and heavy property speculation by baby boomers, a millennial may need a $100,000 deposit or more to buy a home and will have to compete with potentially thousands of other candidates for a well-paying job.
Those living outside of urban centers — that is, in regional locations — aren’t exempt from problems either. Although property is more affordable, jobs are even harder to come by. The lack of opportunity and even lower wages in regional areas has resulted in many simply migrating to urban centres.
The Higher Education Obsession
Not too long ago, Michael Bloomberg shocked many by advising young people to aspire to become plumbers or electricians rather than necessarily going for a university degree. This went against the grain, and against the advice we have been preaching for decades. We’ve all been told, at many points throughout our lives, that we need to get a degree.
Millennials have taken this advice, dutifully packing our bags each day to attend lectures and tutorials. While living at home, we’ve spent years studying, staving off joining the workforce, and in many cases racking up debt to use as living expenses. All to obtain the holy grail that is higher education.
But as an oversupply of college graduates resulted in industry congestion, the value of a college degree diminished. This by itself wouldn’t have been devastating had it not been combined with an astonishing increase in higher education tuition. To credential ourselves, we’ve had to get into serious debt — $1.3 trillon of it exists in the United States.
Some analysts believe that a large portion of student debt is unlikely to ever be repaid. The borrower either earns below the taxable income threshold, has moved overseas, or opts for bankruptcy.
These are huge investments in human capital and huge costs to be left sitting idle. Our economies should be relishing in the available skills and knowledge of millennials. Rather, we are burdened with debt, suboptimal or underemployment, and at times even unemployment. Is this the rise of diminishing returns on education? Or an amplification of structural shifts and a broad deterioration in labor market conditions?
These are young adults, well-educated but devoid of stable economic prospects, whose disenfranchisement is leading them toward political radicalism. Misled by a promise of jobs and income at the end of the tertiary-education tunnel, many afterwards feel squeezed out of the economy.
The Gig Economy
We can’t talk about millennials and living at home without bringing up the gig economy. The millennial mindset is actually fully compatible with, and even animated by, the promise of entrepreneurialism and being a “difference maker.”
The rise of instantaneous communication and digital marketplaces has enabled the digital natives to work from anywhere — including, and especially, from home. Just think of those companies and tech unicorns born in garages and bedrooms.
Study time puts constraints on work. The gig economy is thus an alluring option given its always-on, 24/7 accessibility. Being an Uber driver, retailing on Ebay, working Airtasker, and freelancing online are all examples of flexible work options that accommodate a schedule filled with study requirements or travel interests.
There’s a catch, though. We millennials often work without benefits, for lower wages, or reduced hours because we value flexibility, control, opportunity, and doing something we’re passionate about. That’s a story that involves risks, but risks that are easier to take when you have the parental safety net. Even underemployment is less significant when you don’t have the full household costs to bear.
The gig economy has lots of benefits. It’s also a volatile mode of employment. Failing companies, and fads and fashions, usually result in jobs whose fundamental characteristic is transience. The inability of legislation to keep up with, and allow to flourish, gig-economy giants such as Airbnb and Uber highlight the risks inherent to this configuration. These same risks also make the safety net harder to give up. This is all without even mentioning the concerns that automation and artificial intelligence create around job security.
The Consequences of Staying Home
The multigenerational household leads to different behaviors for income, savings, and consumption than does the traditional home. Both modes can be broken down into units of parents and children, yet the multigenerational home features adult children. The multigenerational setup generates lots of benefits for the young adult and is thus seen as a highly attractive option (obvious drawbacks notwithstanding).
While the millennial remains at home, the household achieves comparative economies of scale. The household is able to shop in bulk and achieve quantity based discounts compared to that same millennial running a household separate from his or her parents. In essence the cost in gas, electricity, and food per person is lower with more people under one roof. Household economies of scale reduce comparative consumption, but have fascinating functions on savings.
Parent savings remain stagnant or decline due to the additional costs of the household that are typically borne by them. Countering this is potential increased savings for the millennial. Functioning as a kind of premature transfer of wealth, the millennial is able to increase his or her savings at the parents’ expense. This transfer creates an interesting take on deferring consumption today for consumption in the future.
The increasing household debt ratios suggests that millennials living at home are also utilizing the living arrangement to leverage. Data shows we millennials use credit cards less than our parents but are more likely to finance a large purchase, such as an auto loan. The data also highlight that we are more likely to buy an investment property than be owner-occupiers for our first homes. Living at home obviously allows millennials to use low living expenses, additional savings and/or parental guarantees to qualify for credit all the while also maximizing potential benefits.
Overall this increases the household’s total leverage, especially if we consider all forms of debt such as student debt, parental mortgage debt, credit cards, travel costs, and auto loans. The cost of the immediate savings and then cost of servicing the debt are also contributors to falling household consumption.
The Foundation for Young Australians find that it takes young adults an average of 4.7 years to transition from full-time study to full-time work. This is in contrast to just 1 year in 1986.
To demonstrate this shift let’s explore a hypothetical in which millennials are able to transition to work within a year and move away from home in their early rather than late 20s.
If just 10 percent of the millennials living at home (at least 26 million millennials live at home in U.S.) moved out to a replacement home, we would potentially unleash a residential housing boom to the tune of 2.6 million new house seekers. A flow on effect would be an increase in the number of parents downsizing or using their spare space on platforms such as Airbnb.
The next step for millennials in their new homes (rented or purchased) would be to furnish them. Shopping for, or getting upgrades on, refrigerators, couches, and a variety of household appliances would naturally increase aggregate demand.
Following that is the cost of running a household: food, utilities, maintenance, etc. These costs would further increase aggregate demand which would consequently create more jobs and opportunities within the economy.
Based on this simplified hypothetical we can see that our current situation is costing the economy dearly in the short to medium term. And that’s not even taking into account the potential job reductions that could take place within the elderly care industry, as millennials lend a helping hand by being available within multigenerational households.
The Japanese economy has high numbers of millennials living at home and a lagging economy. Household consumption makes up over 50 percent of most developed nations’ GDP and millennials make up a large portion of the income-earning population. There is also no denying that marriages, children, and new homes make up large portions of our lifetime consumption.
Based on this, it can be reasoned that by millennials not partaking in these life events or delaying them they are producing a lagging effect on the economy; they are essentially reducing aggregate demand and unwittingly reducing opportunities for themselves.
It would be a mistake to assume that millennials are perfectly content living at home. Obvious restrictions on freedom come with living with mom and dad, no matter how walled off one’s room is.
Some studies report that millennials who live at home are less satisfied with life than those who have independent living arrangements. Many millennials accept these costs to well-being because the perceived costs of moving out are far greater.
Ultimately, staying at home is also a tale of wages, business investment, and incompetent politics. We need strong political leadership to invigorate the economy. We need legislation to embrace the gig economy, enable business investment, and encourage market participants.
Millennials by and large want to work, pursue a purpose, and be change makers. Some make the case that millennials would increase their chances to achieve these objectives by moving out earlier. The truth is that for millennial flourishing a host of factors at the institutional, political, economic, and cultural level ought to be configured in the right way.
