Where does your dad live?
My dad lives in the city.
The difference between the question and reply is that you've removed the auxiliary verb "do," which helps form the question. As Oxford Dictionaries explains, "do" is used in verb phrases to ask questions, add emphasis, or form negative statements. Here are a few examples based on your question and answer:
(Emphasis - present) My dad does live in the city.
(Emphasis - past) My dad did live in the city, but ...
(Negative) My dad doesn't live in the city.
(Question) Does your dad live in the city?
With each example, do is the verb that takes number (singular and plural) and tense (like present or past). In questions, the auxiliary verb is often shifted away from the main verb, but the auxiliary verb still is the one that changes number, tense, and mood. "Live," or the verb helped by do, always takes a bare infinitive form, which here looks like a plural present tense verb but merely lacks any affixes like -s or -ed. In trying to modify the main verb as well as the auxiliary verb, your husband has overcorrected his speech.