This was first published on our Substack.

Football isn’t really our thing, but recently, people have been telling us it’s coming home. However, being in our mid-to-late 20s, we do know that young people like us are coming home – or never left. Nearly two-thirds of people in their early 20s are now living with their parents, an 11 percentage point increase since 2011.

So, what could be driving this? Housing costs matter: rent takes up a third of the income of young private tenants. But, when living with parents, housing costs take up just 4 per cent. As home ownership is out of reach without a chunky deposit, and bills and the cost of essentials have risen sharply, living at home is a financial no-brainer. The real loss isn’t economic, it’s personal independence.

Living at home messes with how we measure living standards

In theory, another explanation could be that incomes have gotten so squeezed that the young just can’t afford to move out. Happily, for young adults born in the 1990s, we find that – on our standard measures – incomes are growing again.

Us think tankers measure living standards via household incomes. But this may cloud the picture, because youngsters are increasingly living in homes where most of the money still comes from their parents.

We can check this by singling out (roughly) the young person’s own income.¹ The chart below shows that half of the living standards progress at the household level is attributable to the young adults’ own incomes as opposed to others in the home. Zooming in on those in their early 20s, only 10 per cent of the growth comes from their own income.

Using our own income measure, current 25-30-year-olds (born 1996-2000) were bringing in around 15 per cent (£3,700) more income when they were aged 20-26 than those born ten years earlier (1986-90). The latter group entered the workforce in the shadow of the financial crisis, so their incomes were unusually weak to begin with, but it’s reassuring that incomes are moving in the right direction.

Rising earnings drive this progress. This chart shows typical weekly earnings were higher for people born in the 2000s, compared to people born in the 1990s.

Employment rates and weekly hours haven’t changed much recently, which leaves us with better hourly pay explaining progress. The minimum wage has increased by nearly 40 per cent since 2012, which is important for the bottom 10^th of younger workers whose pay has risen at a similar rate to this.

However, as the number of NEETs – young adults not in Education, Employment or Training – surges past a million for the first time in over a decade, it would be remiss of us not to warn of the risk of this positive story petering out. While we don’t have much data on overall incomes for people born in the early 2000s, the information we do have suggests things could be slipping again, so this needs watching closely.

In the meantime, to support NEETs, the Government should expand mental health provision, boost Further Education funding, and prioritise under 25-year-olds in apprenticeship funding. It should also abandon convergence between youth and adult minimum wage rates. Absent an incentive to hire inexperienced young people, employers are unlikely to keep doing so at the rate required to keep young adults’ incomes rising.

Back to the home front

Even with some income progress, home ownership is still out of reach. For current 31-35-year-olds, around one in four owned a home at age 28, compared to nearly half of those currently aged 61-65.

The generational home ownership gap is partly down to wealth holdings. Older people have had time to save for a pension so will always own more than the young. What is striking, however, as the next chart shows is that the gradient across the age range has got steeper. Real-terms wealth gaps between 20-somethings and 60-somethings grew by around £320,000 between the mid-2000s and early 2020s (a 58 per cent rise). This is challenging enough, but the effect of our increasingly asset-dominated economy isn’t equal within a cohort. Higher income 20-somethings are typically able to rely on larger inheritances and gifts – and much earlier in life.

The key to giving young people independence is action on housing. To give people a chance to own, we’ve proposed a Starter Deposit Scheme, where the Government provides first time buyers with a loan for 5 per cent of the price of an entry level home. But it needs to go beyond helping just prospective buyers and support renters by increasing Local Housing Allowance. And, over the long term, the top priority must be building more (affordable) homes.