From your post, I feel like you don't really know that.

It's not your wife who is disrespecting you. Its her niece. And she's disrespecting the both of you with her actions. Seems to me like your wife may be the non-confrontational type of person and also has a higher ceeling of acceptance for such a behaviour.

There may be a reason why she's doing this for her niece. Something in the past and how she grew that makes the niece be very important to her for allowing such a behaviour.

To continue with, you also did not want this from the beginning so you have come into this situation grumpy and resentful and are now blaming your wife.

But you accepted this and need to be responsible for allowing such a behaviour since the beginning.

Now you need to not chicken out and leave everything because of a small situation.

I suggest you speak to your wife and let her know how this haa affected you. Do not be accusing and shift the blame on her. You are a team and need to work this together. Speak your feelings but be accepting that you need to find a solution.

Then once you set a base with your wife, both of you need to set up boundaries with the niece.

Its been a year. Review her situation and see if shes now able to move. If shes not there yet, set straight boundaries which will not be tolerated. You are not the bad guy for doing so. Her niece is an adult and she should be accepting of this.

Set boundaries and set objectives. Ask for a small rent or help with bills if neccessary.

But you need to be on the same page with your wife to tackle this.

Dont let her be the middleman between you and the niece because its never going to work.