CHAPTER 1: INTRODUCTION
A common question in today’s world is regarding homeownership and the generation of birth. Specifically, it is frequently asked if there is a relationship between the two. While homeownership is seen as a beneficial ways to accumulate wealth and stability within the United States and multiple questions have been raised as to whether or not one’s generation is a contributing factor to homeownership, there have been few studies that have been conducted in an attempt to link the two variables. A growing body of literature shows that millennials have a lower homeownership rate than that of other generations. Despite this, there is still little known about the accumulation of wealth as determined by individual generations. Wealth is a relative term and frequently described as the accumulation of a large amount of money, real estate, and/or other assets. The biggest reservoir of wealth within the United States is through home equity, accounting for 69 percent of the population (Shapiro 2006). Moreover, homeownership is one of the most important motivators for the accumulation of wealth (Demarco 2016).
Within the present thesis, I discussed homeownership, focusing on the millennial generation, as compared to other generations. To do this, I examined the long-term implications of homeownership by the generations by income, race, marital status, family size, years of education, sex, income, and home value. I leveraged home values in relation to income to determine a relationship with homeownership. The IPUMs survey contained data from 1980 to 2018, which provided demographic, household, and income data, allowing for the examination of cohorts with specific microeconomic characteristics. To analyze the different generations, individuals were divided by year of birth, age, sex, and race. I conducted an empirical analysis using this data through regressing homeownership in relation to demographic information, controlling for fixed effects of state, time, and age. I analyzed the income, race, marital status, years of education, sex, and home value as independent variables to see the amount of impact on homeownership across Generation X, the millennial generation, and Generation Z.
My findings contained within the present thesis contribute to the existing body of literature in different ways. First, I found that among the three generations analyzed, Generation X has the highest percentage of homeownership. This was followed by the millennial generation, then Generation Z. Second, after adding externalities to the regressions, the millennial generation had the highest probability of homeownership. Third, in the millennial generation, marriage and family size are the two independent variables that influenced homeownership the most across the generations analyzed. Finally, education was one of the least significant dependent variables across all generations as an influencer of homeownership.
The millennial generation is a large portion of the world population and workforce. As of 2012, about half of the global population is composed of individuals under 30 years of age, meaning that this generation is ascendant on a domestic and international scale (Rayfield, Hassan & Mai 2018). Figure 1 (shown below) illustrates the percentage of the millennial population as compared to those becoming part of the adult population of the United States. From 2008 to 2020, the millennial population has increased from 38% to 80%, with 4% becoming legal adults. By 2025, it is expected that millennials will account for 75% of the global workforce (Kim, Anderson & Seasy 2019).
It is also noted that millennials are projected to become the most educated generation in the history of the United States (Kim, Anderson & Seasy 2019) and the mast majority “have attended college and have college degrees, even more so than other generations (Levenson, 2010)” (Rayfield, Hassan & Mai 2018, p. 2). Throughout this generation, a common thread has been present in their pursuance of higher education, which leads to higher opportunities for employment (Rayfield, Hassan & Mai 2018). On the other hand, the millennial generation has a higher level of debt as compared to prior generations because of the necessity of obtaining student loans to cover rising higher education costs. When considering the number of individuals that have student loans, most are under 39 years of age. Due to the age range of the millennial generation, it is indicated that they make up the majority of those that have student loans (Rayfield, Hassan & Mai 2018).
For the graduating class of 2018, the average student loan debt amount is $29,800 (Hoffower 2020). In fact, student loan debt is a major factor that affects the personal finance decisions of the millennial generation in terms of homeownership. It has been acknowledged that student loan debt has generally caused a decline in the likelihood of homeownership. In 2015, it was noted that there was a 9.3% to 8.4% decrease in the probability of homeownership for those with student loans (Click, 2015). Overall, there are increasing levels of debt for this generation, which is a relevant factor in consideration of the potential negative impact on homeownership. When focusing on the degree of homeownership across different generations, it was reported during the 2018 census that the millennial generation have under 35% of the total homeownership value.
Due to higher prices in today’s market for homeownership, the millennial generation is more likely to rent, as opposed to own, a home. From September 2010 to 2018, the median price for a new home increased from $228,000 to $320,000 – representing a 40% increase. This is about the same time the millennial generation began joining the labor force and paying off student loans. Homeownership rates among the millennial generation have lagged in comparison to prior generations. In 2019, 12% of renters in the millennial generation said they plan to always rent. In some metropolitan areas, nearly 1 in 5 individuals in the millennial generation that rent said that they expect to rent indefinitely, according to an apartment list survey. Among the renters in this group that eventually plan on homeownership, 70% are waiting to buy and can’t afford it, but 69% state they plan to rent indefinitely (Warnock 2019). Although homeownership is perceived as being a financially sound decision, there are obstacles of high prices and, across the United States, millions struggle to access affordable housing.
Another barrier is based on the Great Recession, which provided scarce employment opportunities to the millennial generation, as well as increased fear of homeownership. This generation entered the workforce following one of the most critical moments in recent history for the United States economy, where high unemployment rates and low rages were the norm, as compared to other generations (Kim, Anderson & Seasy 2019). This generation has had to compete with others with similar levels of education to find work in a dense employment market to earn a high salary (or at least one that earns a living wage). After the Great Recession, the millennial generation experienced first-hand how home values can turn from being a valuable investment to a risky asset. Due to these challenges, the millennial generation has a full understanding of how volatile the market can be, despite the clear knowledge that real estate is considered to be the safest investment through history (Kim, Anderson & Seasy 2019).
The millennial generation has delayed marriage, in many cases, due to its high cost, which has highly impacted their decision regarding homeownership. Less than 40% of the millennial generation have stated that they are delaying homeownership or property ownership because they are waiting to get married (Salviati & Woo 2017). However, cohabitation has surpassed marriage as being the typical relationship experience in young adulthood (Manning, Smock & Fettro 2019). Members of this generation that are well-educated and can afford to marry tend to do so, but those in lower-income brackets tend to avoid marriage and are more inclined to continue cohabiting (Manning, Smock & Fettro 2019).
Another challenge faced by the millennial generation in the process of homeownership is the availability of homes for sale in the current market. A higher percentage of homes are owned by Generation X or Baby Boomers, who are not looking to sell their homes. One 2017 survey conducted of homeowners 55 years of age and older showed that 85% of these individuals have no plans to sell their homes. This accounts for approximately 33 million properties that are not available for purchase (JEC Dems Report 2018). It has also been seen that “while the overall homeownership rate fluctuates over time due to recessions, interest rates, home prices, student loan debts, and other factors, the impact varies by age group. Those under age 35 are much less likely to own a home than those age 65 and older” (U.S. Census Bureau 2019). Figure 2 illustrates the homeownership percentage by age group from 1982 to 2019. The millennial generation, who are 39 years old and younger, do not meet the U.S. homeownership average illustrated with a red line. The Baby Boomer population who are 55 years and older, do have a high homeownership rate above the U.S average.