How Local Rent Change and Earning Capacity Affect Natural Household Formation by Young Adults

Through a longitudinal survival analysis, this paper provides the first look into the long-term process of nest leaving, which is a pre-condition for natural household formation by young adults. Using the American Housing Survey (AHS) data to follow a group of young adults aged 25-34 who were living in parental homes in 1985, we found that nearly 23 percent still lived in parental homes by 1995, even at age 35-44. We also found that an increase in the local fair market rent (FMR) is detrimental to young adults’ effort at achieving independent living, while a decrease in the FMR may help young adults leave their parents’ house. While the adults are still young, they are more able to achieve independent living when local rent conditions change in their favor. As they become older, they are less able to achieve independent living, even when local rents go down. Concurring with Haurin et al. (1993) and Di et al. (2002), this paper finds that the potential labor earnings are important in explaining the probability of leaving parents.