Working-aged Millennials have been living with parents at a consistently higher rate in recent years. Nationwide, over 21% of Millennials are at home in the nest in 2014 (the latest available data), up significantly from 13% in 2005, according to Zillow.

California Millennials are especially prone to live with parents. In:

  • Riverside, 33% of working-aged Millennials — 215,000 people — live with their parents;
  • Los Angeles, 31% of working-aged Millennials — 683,000 people — live with their parents;
  • San Jose, 24% of working-aged Millennials — 76,000 people — live with their parents;
  • Sacramento, 22% of working-aged Millennials — 76,000 people — live with their parents;
  • San Diego, 22% of working-aged Millennials — 125,000 people — live with their parents; and
  • San Francisco, 21% of working-aged Millennials — 162,000 people — live with their parents, according to Zillow.

Accounting for the increase in today’s higher share of Millennials living at home, the housing market is missing out on hundreds of thousands of additional renters and homeowners.

California’s conundrum for Millennials

California has a much larger share of Millennials living at home with parents than the rest of the nation. Why?

The price of rents here is significantly higher than average.

Rents are 6% higher than this time last year in California, while the average U.S. year-over-year increase is just 3%. Further, the average rent here ($2,340) is the third highest in the nation, after the District of Columbia and Hawaii, according to Zillow.

While California rents are increasing at an annual rate of 6%, incomes here are rising one-third slower, around 4% a year as of 2014, according to the Bureau of Economic Analysis. Over time, this difference builds up, and recent high school or college graduates end up living with parents out of necessity. Those with enough income to move out are saddled with roommates.

Less common, some savvy young adults may delay becoming renters so they can save up for down payments and move straight from the nest into homeownership.

However, expect this trend to reverse around the end of this decade. The jobs market is recovering quickly, having surpassed pre-recession numbers back in 2014. With the working-aged population gain, California is on target to regain full employment numbers around 2019. By this time, young adults will have saved and worked their way into more comfortable financial positions, from which they will be able to become homeowners.

The only potential complication is from rising rents. More multi-family construction needs to be built to satisfy demand from this group, which is slowly coming into their own. Rental vacancies are at historic lows and construction continues to lag well behind population growth — together, a recipe for the high rents experienced today. To bring rents back in line with incomes, more units will need to be built, which will help give Millennials that extra push to get out of the nest.