Why aren’t millennials buying houses?

The millennial generation came of age under the shadow of the housing bust in 2008, and while the housing market has since recovered in most American markets, many millennials remain unable or unwilling to ditch renting in favor of homeownership.

Given the United States makes homeownership central to wealth building, this is potentially problematic for the future financial prospects of the nation’s largest-ever generation, particularly at a time when income and wealth inequality is so entrenched.

A new report from the Urban Institute takes a deep dive into why the millennial homeownership rate remains stubbornly below that of other generations. For millennials ages 25 to 34, homeownership is 8 percentage points lower than baby boomers at that age and 8.4 points lower than Generation X.

There’s no single reason for relatively low millennial homeownership. Rather, it’s a confluence of socioeconomic trends that serves as an impediment to millennials purchasing a piece of the American dream.

Millennials like living in high-cost cities where homeownership is out of reach

“Millennials prefer to rent” because of their freewheeling, wayward lifestyle is an oft-peddled narrative. The Urban Institute’s report concludes that preferences toward homeownership among millennials have likely had an impact, but “might not have changed as significantly as some have suggested.” The report suggests that their preference for where to live is having a bigger impact than their views on homeownership itself.

The urban revival in America’s biggest cities, like New York, San Francisco, Los Angeles, and Washington, D.C., has been fueled by young people’s preference for living in those cities. Major employers looking to attract young talent have followed suit by setting up offices there.

These cities have historically been expensive, but housing prices have risen since the financial collapse. Rents in coastal cities have far outpaced wages, making it hard for millennials to save money for a down payment. The housing supply in these cities is also constrained, driving up the price to buy.

Millennials are better educated than previous generations, and those with higher levels of education are leading the rush into urban centers. Given that higher levels of education often equals higher wages, millennials who make more money, and would otherwise be able to buy a home, have instead moved to markets where rents and home prices are sky high.

Millennials are waiting longer to get married and have children

Home purchases historically accompany entry into a new stage of life, such as having children or retiring. Millennials have been slower to pass through these stages of life than other generations, beginning with moving out of their parent’s house.

In 1990, 26 percent of 18-to-34-year-olds lived with their parents. In 2015, this share had risen to a whopping 35.5 percent. Similar trends are present in marriage. In 1990, 52.3 percent of 18-to-34-year-olds were married. In 2015, it was just 38.5 percent.

And these delays trickle over to having children. The share of households between the ages of 18 and 34 who had never been married or had children was 27.6 percent in 1990. In 2015, it was 40.1 percent.

Delays into entry for these life changes may be just that — delays. As millennials age, some will end up getting married and having children, leading to more interest in owning a home. Whether the delays result in a portion of millennials who decide to never get married and have children will be something to watch.

Student loan debt, tight credit make homeownership financial unfeasible

Buying a home used to be the largest expense a household would make in their lifetime, but over the last 20 years student loan debt has ballooned, loading millennials up with debt before they reach prime home-buying age.

At the beginning of 2003, outstanding student loan debt totaled $241 billion in the United States, according to the Federal Reserve Bank of New York. In 2018, it’s $1.4 trillion. Research from the Fed concluded that 11 to 35 percent of the decline in homeownership for 28-to-30-year-olds between 2007 and 2015 was a result of student loan debt.

Coupled with tighter mortgage lending standards since the financial crisis, student loan debt has made it harder for millennials with little credit history to qualify for a mortgage. The report recommends increasing education to improve financial literacy, streamlining the mortgage process, and expanding the scope of credit evaluations to include rent and utility payments as possible ways to increase millennial homeownership.