Gen Z & The Housing Affordability Crisis

Alongside the feeling of glorious independence that you gain in moving to a new city, living on your own, and taking baby steps toward your career, so too comes the recognition of a rather suffocating reality: housing. Or perhaps more accurately, the steep and rising costs associated with renting or owning a home— in essentially any American city.?

The prospect of buying a home, saving for a down payment, or setting down firm roots in any one place feels immensely distant for most young folks, and the reality is that in many cases, it is: the worsening affordability of housing can be attributed to a full one fourth of the increase in the share of young adults living with their parents—and as much as twice that for people of color.

This week in Three Not-So-Bad Things about Being Gen Z, we’re diving into housing: the landscape of home ownership for younger folks approaching their home-buying years, what we can expect moving forward, and how we can prepare ourselves for the financial realities of home ownership.

1. What’s the outlook??

According to an Intuit Credit Karma survey, nearly a third (31%) of Gen Z adults who live at home with parents do so because they can’t afford to buy or rent their own space. And, among the population of Americans who are able to rent, nearly a quarter (24%) say they can no longer afford it. When we look at Millenials and Gen Z, that figure climbs even higher: with 30% and 27%, respectively, reporting that they can no longer afford their rent—compared to just 10% of respondents aged 69 and above. That same survey revealed that, to make ends meet, many renters (38%) are having to sacrifice necessities to pay their rent, including 41% of Gen Z and Millennials.?

But why is this the case? Well, in large part, a perfect storm of compounding, systemic issues. On top of carrying larger student loan balances, Gen Z workers’ wages are lower than their parents’ earnings when they were in their 20s and 30s—while housing costs have continually outpaced them. In 2000, the average proportion of a person’s income that goes to rent was 25%. Now, it’s 40%. That is a striking, and in many cases debilitating increase—leaving little room to save money for essentials like groceries, and much less emergency expenses.

And that’s just rent. In terms of home ownership, the outlook is similar, if not slightly more daunting: between home prices and mortgage rates, 2023 was the least affordable home buying year in at least 11 years, according to a report from real estate company Redfin. Now, the average rate for a 30-year, fixed-rate mortgage is hovering near 6.6%—which is down from recent highs, but still twice what it was three years ago.

There really is no sugarcoating it: we are in a housing affordability crisis.?

2. Is this going to change??

The good (and occasionally annoying) thing about Gen Z is that if something feels incorrect, unjust or even plain wrong—we’re going to make noise about it. In a new survey from Redfin, 91% of people ages 18 to 27 reported that housing affordability is the most important issue for them heading into this election, followed by the economy and education. Gen Zers were more likely to rate housing affordability as an important factor in their vote than any other issue they were asked about, including the economy, abortion and gun rights, preserving democracy and foreign wars.?

That is striking—and significant. If we are able to press this issue on a policy level, it brings weight to the urgency of the situation while taking us a step in the direction of implementing new strategies and aid programs to folks of all ages who are cost burdened by their housing—and especially those who are just beginning to think about what it could mean to own a home.?

But, in the meantime, you ask, what is being done now? And when can we actually expect things to change? Well, it merits a look at our peer countries, most of whom are struggling under soaring housing prices as well. France, for one, actually presents a standout example of a country where changing regulations—and nimble private capital—have aligned to create sustainable, long-term solutions for low to middle income housing. In fact, between 2001 and 2019, approximately 1.8 million social housing units were developed in France (which is roughly 100,000 per year). In Paris, essential workers—including firefighters, teachers, and bakers—are among those receiving an allocation of affordable housing to be near their place of work. In the real estate landscape in Paris, the city has increased mixed use developments, and the provision of affordable housing in the heart of the city. One project, called Samaritaine, sanctioned the redevelopment of an iconic department store to incorporate 96 social housing dwellings.?

Such ideas are theoretically scalable in the US—but it will take community leaders working together with private developers to address the housing shortfalls and the opportunities for improvement. We have seen small-scale examples of this already, but moving the needle on our elected official’s agendas can do a whole lot to encourage more of it.?

3. What can I do to prepare??

For many (around 31% of Gen Zers), navigating the difficult housing landscape has meant living at home longer—until their student loan debt is paid, or until they have enough saved to feel financially stable. Others have approached the idea of "house hacking," or renting out part of your property to afford housing costs. A further few have turned to co-living situations—which offers more affordable options for modern housing with shared living spaces (think: adult college dorm).?

These solutions are workarounds more than anything, and can help provide other ways to navigate difficult financial realities in the short term—but that’s not to say they won’t make a difference. The first step on the path to home ownership is saving money, and of course it’s quite a bit more difficult to do so when you’re not already cost burdened by rent. In the longer term, though, there’s a lot we can do to prepare. A lot comes down to mortgage rates, the accessibility of loans and assistance, and the amenities you deem are necessary for your home. By thinking about it now, you can make it a whole less burdensome some ten years down the line when it’s time to buy a home. Check out this article for some tips (or this one).?

The long and short of it:?

1. Housing affordability is at an all time low, as the rates of rent and prices of homes have continually outpaced wage growth.
2. Housing affordability is top of mind for Gen Z voters going into the 2024 election. And although some of our peer countries have come up with innovative ways to address this crisis, it will be a while until we see such changes implemented in the US.
3. Short term solutions for a lack of housing affordability range from living at home longer, to renting out your space, to pursuing coliving. But thinking in the long term toward home ownership will require significant planning, and resources. Even if it feels far away, if you know you want to own a home in the future: start now.