Association for Public Policy Analysis & Management

This paper uses the Panel Study of Income Dynamics to explore the decisions of black and white young adults to remain in their parents’ home or to form their own household during the tumultuous 2001-2013 period. We use MSA fixed effects to capture geographic heterogeneity and develop exogenous measures of housing and labor market contexts using Census and ACS PUMS data. We then run a Oaxaca-Blinder style decomposition analysis to explain the race gap in household formation over this 13-year period, and conduct several robustness checks. We find strong support for the influence of economic context, with strikingly different results by race. Blacks were most sensitive to rents, which increased more dramatically for black young adults over most of the 2001-2013 period compared with whites’ rents. The results also suggest that blacks were operating in strongly segmented housing markets throughout this period. In contrast, whites were most sensitive to employment rates, which decreased for white young adults over this period from 75 percent in 2001 to 70 percent in 2013. Despite their unrestricted access to the entire labor market, falling employment proved a significant deterrent to new household formation for white young adults.