Why the 2022s Housing Market is Going to Make Inequality Even Worse


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Younger generations are much less likely than older generations to possess their own home at the same age. Due to changes in the economic environment, younger individuals are waiting longer to leave their family home. This is preventing them from being self-sufficient.

The labor market, the housing market, and financial conditions fluctuations can leave an indelible impression on a generation, limiting their access to homeownership.

Studies demonstrate that in the United States, younger generations are less likely than older generations to be living in their own homes at the same age. By the age of 35, 70% of households led by someone born in the 1940s owned their homes. For those born in the 1960s, the percentage dropped to 60%, and for the early millennials born in the 1980s, it was around 50%. When comparing individuals born between 1965 and 1979 with those born in the 1980s, homeownership rates at age 35 have declined by almost 10% throughout southern Europe. Simultaneously, young people are taking longer to leave their parents’ homes and live on their own (Becker et al. 2008).

Research indicates that younger generations in the United States are less likely than older generations to be living in their own homes at the same age. By the age of 35, 70 percent of families headed by someone born in the 1940s owned their homes. For those born in the 1960s, the percentage dropped to 60%, and for those born in the 1980s, it was around 50%. When comparing individuals born between 1965 and 1979 with those born in the 1980s, homeownership rates at 35 years old have declined by almost 10% across southern Europe. Simultaneously, it is taking longer for young people to leave their parents’ homes and live alone (Becker et al. 2008).

What has caused these shifts? I create a model of homeownership and portfolio choice over the life cycle with a rich risk structure to uncover the essential drivers (Paz-Pardo 2021). It’s not because younger generations don’t want to purchase houses anymore, according to the model: changes in the economic environment adequately explain the size of the reduction in homeownership rates.

Changes in the labor market’s role

More than half of the decline in homeownership rates can be attributed to changes in earnings. Career-long roles have become increasingly scarce for younger generations, jobless periods have grown longer, and pay disparity has risen (Acemoglu and Autor 2011, Goldin and Katz 2009). 1 While the real wages of wealthy earners have climbed significantly over time, the real wages of poorer workers have remained stagnant or decreased. As a result, it is more difficult for them to purchase a property. Why? There are almost no houses on the market that are less than a particular price, quality, or size. Households unable to obtain a mortgage for that amount are thus excluded from the property market.

The timing of pricing changes and the business cycle can leave an indelible impact on a generation. A generation that benefits from cheap housing prices during its prime homebuying years, for example, is likely to have more homeowners. And once a family becomes a homeowner, they are likely to stay that way for the rest of their lives. Those born in the 1960s joined the housing market during a time when house prices were cyclically low, which offset other unfavorable factors affecting homeownership. The converse was true for individuals born in the 1980s, which was exacerbated by the impact of the 2008 financial crisis on their earnings.

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