Millennial Homeownership: Why Is It So Low, and How Can We Increase It?

This study shows that the homeownership rate for millennials was 37 percent in 2015, or about eight percentage points lower than that of the two previous generations (Gen X and Baby boomers) at the same age (25 – 34). We quantify for the first time some of the many factors which impact the lower homeownership rate. Specifically…increased rents: A 1 percent increase in a household’s rent-to-income ratio decreases the likelihood of homeownership by 0.07 percentage points.
We provide more detail about two important factors that impact the rate:
Parental wealth and homeownership status: A child’s likelihood of being a homeowner increases by 9 percentage points if their parents are owners and a 1 percent increase in parental wealth increases a child’s likelihood of being a homeowner by .016 percentage points.
Location choice: The preference of educated millennials to move to more expensive urban centers has contributed to their lower homeownership rate.
We also discuss four policies which could increase millennials’ access to homeownership and address the concerns we have highlighted:
Enhance the financial knowledge of young adults about homeownership: Provide financial education in high school that includes information about homeownership and downpayment assistance programs. Provide accessible and engaging online training for homebuyers, including information about downpayment assistance programs.
Use technology to simplify the mortgage process: Use financial technology to streamline and increase the efficiency of the mortgage process.
Expand credit assessment criteria: Include rental, telecom and utility payment history when evaluating millennials’ creditworthiness and fully capture income in the underwriting process
Ease land-use restrictions: Change land-use and zoning regulations to allow for more construction, particularly in areas with tight housing supply.

Jung Hyun Choi, Jun Zhu, Laurie Goodman, Bhargavi Ganesh, and Sarah Strochak

Urban Institute

July 11, 2018

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