Homeownership among millenials is significantly lower than that of previous generations, according to a new study from the Urban Institute, and regressive zoning and land-use regulations are partly to blame. From the executive summary:
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.
The effects of regressive land-use and zoning regulations hit millennials particularly hard due to their geographic preferences. Educated millennials, the report finds, are more likely to move to coastal cities with strict zoning regulations, putting homeownership out of reach.
The share of young adults with greater educational attainment increased more in cities with low housing supply elasticity. In contrast, the relationship between the share of less educated young adults and housing supply elasticity is positive, suggesting that less educated young adults did not (or could not) migrate to inelastic cities. This is consistent with inelastic cities attracting young adults who are more likely to have high earning capacity. The share of millennials increased in inelastic cities, as the relative share of population increased significantly in these cities, while the share of less educated young adults did not change much relative to more elastic cities.
In addition to zoning regulations increasing the price of homeownership so it is out of reach for many, higher rents make it tougher to save for a down payment.
There are other, more benign causes to this decline. Millennials marry and have children later, making it easier to postpone settling down and buying a home. Additionally, as a more ethnically diverse generation, the homeownership rate is brought down by larger numbers of non-white millennials, who are less likely to own a home than whites.
Concerns about declining homeownership should be taken with a grain of salt, particularly when they are based on the premise that housing should be treated as an investment. That being said, homeownership being out of reach for many who want it is a symptom of the disease that is regressive zoning and land-use regulation.