Hi Buttercup,
It does sound like the arrangement is taking its toll on your relationship. This begs the question, if the situation is unlikely to alter any time soon- is it worth trying to change his mind if this is the cause?
If he were to move back in with his parents, then any niggles or arguments you have about the house now shouldn’t materialise anymore. It would be a period of adjustment for you if you have lived together for so long, however it could remove that area of strain in your relationship if your family aren't in a financial position to leave.
It’s possible your partner is testing your loyalty to him. If you do encourage him to move back in with his parents then he might think you are taking sides. It might be wise to establish if his threats are genuine or if he just wants you to choose- him or them.
Is your family in a position to move out yet? Could you talk to them about getting their own place? If you tell them that their presence has resulted in him wanting to move out- it could be the nudge they need to search for their own space. If not- could you look into moving somewhere bigger, if the budget allows so you’re not living in such close quarters?
You shouldn’t feel like you have to be confined to one room in your own home so you may have to be firm with your family if they are taking advantage of you or even if you want to make some changes to sleeping arrangements. How would they feel in your shoes?