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Jobs are the secret to getting millennials to move out of the basement

(REUTERS/Kevin Lamarque)

The guessing game continues as to what it will take to pry millennials out of their parents’ basements.

This time Goldman Sachs has weighed in with an analysis of the forces influencing this generation — the largest and most diverse in history — to stay put in the family home rather than form new households.

It’s well accepted that the tight job market pushed young adults to move in with their parents during the recession or discouraged them from leaving in the first place. But some have suggested that perhaps this generation has lost its taste for buying, and that a permanent cultural shift may be underway as the stigma of living at home fades in the aftermath of the recession.

Not so, says Goldman, which predicts that the 18-to-34-year-olds will leave the nest when the labor market fully recovers.

Hui Shan, a Goldman economist, compared the share of young adults living with their parents in two states: California (where the unemployment rate jumped from less than 5 percent in 2006 to more than 12 percent in 2010) and North Dakota (where the rate peaked at 4.2 percent in 2009 and stayed under 3 percent in the past year.)

Shan concluded that the job market most influences whether young adults end up in their parents' home, as demonstrated in the chart below.  “This evidence suggests that the depressed level of household formation among the young in recent years is a product of the weak labor market rather than structural shifts in preferences,” Shan wrote.


But not to worry. Shan also looked at three regional housing busts – in oil-producing states in the early 1980s, New England in the late 1980s and California in the early 1990s. In each downturn, housing prices fell about 30 percent from peak to trough. In each case, the immediate and long-term effects on household formation were the same.

The average household size grew in the early years of each bust, presumably because young adults were moving back home or living with roommates to save on rent, the analysis said. The pattern eventually reversed and the average household size shrunk as more people began forming households of their own.

How long will it take this time around? A couple of years is the best guess at this point, Shan wrote.

Harvard University's Joint Center for Housing Studies offered its own estimate in a recent report. It projected that millennials will make up 24 million new households between 2015 and 2025, substantially boosting demand for rentals and starter homes. The leading edge of this generation will soon reach their 30s, one author said. As a result, the number of millennial households (defined in this study as those born 1985 to 2004) will rise by 2.7 million in the next decade.

Dina ElBoghdady covers housing policy for The Washington Post.
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