In December 2024, the U.S. Census Bureau released updated data on household formation, shedding new light on shifting demographics and their impact on the housing market. As young adults increasingly move out of their parents’ homes, renter demand is rising—presenting key opportunities for multifamily investors. Understanding these evolving trends is critical to anticipating future rental market dynamics and investment strategies.
The number of young adults (aged 25-34) living with their parents rose sharply across the nation following the Great Financial Crisis (GFC), driven largely by recession-related financial burdens, limited job opportunities, and rising housing costs. This trend began in 2005 and ramped up following the GFC, reaching a record high of 8.03 million young adults residing with their parents in 2020. However, the COVID-19 pandemic significantly altered living arrangements across all demographics, with young adults in particular shifting toward housing options that offered greater space and independence. This trend is contributing to increased renter demand across most rental markets nationwide.
Over the past two decades, housing costs have risen significantly faster than median household incomes. Inflation-adjusted rents—as measured by the CPI Rent Index—now stand nearly 95% above their 2005 levels, reflecting an average annual growth rate of 3.4%. Single-family home prices have surged even more dramatically, with a boom and bust preceding the Great Financial Crisis (GFC) followed by rapid appreciation after the pandemic. Since 2005, inflation-adjusted home prices have grown by approximately 85%, while U.S. median household income has increased by just 16% in real terms.
Income growth has been even more constrained for renter households. According to the Harvard Joint Center for Housing Studies’ America’s Rental Housing report, the median renter household income in the U.S. rose by only 2% between 2001 and 2022, after adjusting for inflation. This sluggish income growth, coupled with soaring housing costs, has made independent living increasingly unaffordable for many young adults nationwide.
Driven by rising housing costs, limited income growth, and evolving behavioral trends among younger generations, a growing number of young adults opted to live with their parents following the Great Financial Crisis (GFC). The share of young adults (ages 25-34) residing in their parents’ homes increased by 700 basis points, rising from 10.8% in 2005 to a record high of 17.8% in 2020. This shift represents an increase of approximately 3.78 million “Extended Nesters.”
The rising trend of young adults delaying independent living led to fewer new household formations and weakened renter demand from emerging households in the years leading up to the COVID-19 pandemic. Headship rates—the percentage of individuals who are household heads—serve as a key measure of household formation. A higher headship rate reflects more households being established. However, for decades, young adult headship rates in the U.S. have been declining, suggesting that millions of potential young adult households never materialized in the housing market.
From 2000 to 2013, the national headship rate for people aged 25 to 34 remained stable at around 47%. However, it steadily declined to a historic low of 44.7% by 2017 and remained largely unchanged leading up to the pandemic.
The increased demand for more spacious and independent living arrangements during the pandemic, combined with surplus savings from early lockdowns and financial stimulus, encouraged many young adults to seek greater independence. At the same time, the initial drop in leasing activity due to lockdowns led to increased concessions, lower rents, and better value for new renters, making independent housing more attainable. Additionally, the post-pandemic economic boom created abundant job opportunities and accelerated wage growth, further enabling young adults to move out. These factors collectively drove a rise in headship rates among young adults nationwide and contributed to a significant decline in those living with their parents—both of which have major implications for housing markets.
Key Contributing Factors:
Since the onset of the pandemic, the share of young adults living with their parents has declined by nearly 200 basis points to 15.7%, the lowest level since 2015. This shift reflects approximately 982,000 adults aged 25-34 who moved out between 2020 and 2024. Over the same period, the headship rate for this age group increased from 44.9% to 45.7%, resulting in a net gain of 486,000 young adult households.
Despite this increase in independence, the sharp rise in homeownership costs during this time left rental housing as the only viable option for most of these newly formed households.
Rather than moving in with roommates or other relatives, nearly half of the young adults who left their parental homes formed independent households with a spouse or partner. Notably, between 2020 and 2023—the most recent year of available living arrangement data—the share of young adults living with other relatives or nonrelatives declined slightly, while the proportion living with a partner increased by over 100 basis points. Meanwhile, the share of those living alone remained stable.
As a result, there has been a significant recent rise in household types that traditionally rent, shaping demand dynamics in the rental market.
The recent shift in household formation among young adults is set to significantly impact rental housing markets in the coming years. After the Great Financial Crisis (GFC), economic challenges drove more young adults to live with their parents. However, the pandemic reversed this trend as many sought independent living due to safety concerns and increased savings.
Since 2020, the share of young adults living with their parents has declined notably, while rising headship rates have fueled the formation of millions of new households, boosting renter demand. Meanwhile, surging mortgage rates and home prices have kept homeownership out of reach for most, making rental housing the primary alternative. With multifamily development slowing across the U.S., this growing demand could contribute to a housing shortage.
Nevertheless, the declining number of young adults residing with their parents will continue to drive apartment absorption and rent growth, even in markets with overall population declines. As household formation reshapes the rental landscape, tracking these demographic shifts will be key to identifying investment opportunities and anticipating future market trends.
