If he's an adult, wanting all the adult privileges and trappings, he should be asking to pay rent in exchange for the upgrade of rooms. If he was being responsible, I am certain your husband would feel differently, but I agree with him...
I can see why your husband is against this idea. Giving over the basement area makes it too enticing to stay--for too long. In my life, I've known quite a few guys who were a bit too happy to live at home for way too long with a nice, spacious basement 'apartment'. Plus the home-cooked meals? The idea is for the kids to grow up and fly away from the nest, not to entice them to stay. :)
Do what helps your eldest son to become a grown-up. If there's no real responsibility at home, how will he manage when you are *really* ready for him to move out?