Homeownership among younger households has been decreasing in several major advanced economies. In this analysis, I show that increases in labour inco

Younger generations and the lost dream of home ownership

submited by

Style Pass

2024-09-01 00:00:16

Homeownership among younger households has been decreasing in several major advanced economies. In this analysis, I show that increases in labour income inequality and uncertainty are key drivers of this trend. Confronted with high house prices and low, risky incomes, many young households cannot or do not want to risk making such a big, illiquid investment. As a result, they accumulate less wealth.

Chart 1 shows that, in the United States, younger generations are less likely to be living in their own homes than older generations were at the same age. Among households headed up by someone born in the 1940s, 70% owned their homes by age 35. This figure dropped to 60% for those born in the 1960s and about 50% for the early “millennials” born in the 1980s. In southern Europe, too, homeownership rates at age 35 have dropped – by over 10 percentage points when comparing those born from 1965 to 1979 with those born in the 1980s. At the same time, young people are taking longer to leave the parental home and live independently (Becker, Bentolilla, Fernandes, Ichino, 2008).

Homeownership is a frequent subject of political debate. Owning a house is crucial for the wealth accumulation of most households (Paz-Pardo, 2021), and housing plays a role in a well-diversified portfolio (Chetty, Sandor, Szeidl, 2017). Shutting young people out of housing markets may distort their marriage and childbearing decisions (Laeven and Popov, 2017), and homeownership rates relate directly to the strength of local communities, social capital and political engagement (Glaeser, Laibson, Sacerdote, 2002; Rohe, Van Zandt, McCarthy, 2002).