5 Reasons Why Millennials Can't Afford Homes

Written by Scott Houghton

Owning a home has long been an indicator of success in the United States. As millennials, this goal of home-ownership has been drilled into us since we were little. We were told that if we worked hard and saved our money, we too would be able to own a home. However, as millennials have entered the workforce and the housing market those dreams of home-ownership have quickly dwindled. In Jill N. Filipovic's 2020 book Ok Boomer, Let's Talk: How My Generation Got Left Behind Filipovic explains that nearly 50 percent of Boomers (people born between the years 1946 and 1964) owned homes by the time they were 34 years old. In contrast, just 37 percent of Millennials owned homes by the time they were 34 and that number is trending downward. This is a drastic statistic and should be eye-opening to Boomers to the hardship of home-ownership but instead Boomers have been quick to judgment.

The vast majority of Boomers believe that the reasons Millennials cannot afford houses are because of our unwillingness to work hard and our reckless spending habits (cue Dave Ramsey rant about Millennials buying lattes) while refusing to acknowledge the clear fact that it is indeed harder to buy a home now, than it was 50 years ago. Don't believe me? Well here's a list.

1. Wages Have Stagnated

A pile of 100 dollar bills To fully understand how wages impact one's ability to purchase a home we need to define a couple of things. First minimum wage. According to the International Labour Organization minimum wage is defined as"the lowest remuneration that employers can legally pay their employees. A federal minimum wage was first enacted by FDR in 1938 after the signing of the Fair Labor Standards Act. Initially minimum wage was designed to provide enough money for workers to match the living wage and bring them out of poverty. Living wage is defined as the minimum amount of money someone needs to cover basic living expenses and is directly tied to the poverty level. Minimum wage was a great thing for workers because it provided them enough money to live good lives and feel justified in their work. However, over the almost 90 years since minimum wage was established, the cost of living has skyrocketed and minimum wage hasn't kept up and eventually stagnated in 2009 at $7.25 per hour. This minimum wage stagnation has created quite a problem for many people in the United States. According the Census Bureau as of 2020, there were 37.2 million people in the United States living in poverty.

Now I know what you're thinking, minimum wage isn't necessarily the best way to show the un-affordability of homes and I agree, however, I think that it is important to understand the history of minimum wage because it directly affects what companies are willing to pay their employees at all levels. According to recent studies economists anticipate a trickle up in salaries in order for companies to stay competitive and keep talented workers. In other words, if you raise the minimum wage, everyone else will see an increase in their salaries as well. It is unlikely that this salary increase will happen immediately following a minimum wage increase, but using data from past minimum wage hikes, we can see a clear and direct correlation between the two.

How does this affect Millennials who have recently entered the workforce? Because minimum wage has stagnated wages on all levels have stagnated meaning that the median salary for Millennials is $71,566 when compared to the median salaries of boomers at the same age $13,720 or adjusted for inflation, $73,702. Meaning, the median salary has been remained relatively unchanged for the past 50 years.

2. College Tuition Has Increased

a group of students in a college class. 3 students in focus in the foreground and 7 students not in focus in the background. From when we were really young, us Millennials have been told by our parents and other adults in our lives that college was important for our future job growth and earning potential. And for the most part that has remained true. A study done by Northeastern University in 2020 found that a person who's highest level of education being a bachelor's degree earned roughly $20,000 more per year than someone who's highest level of education being a high school diploma. What has changed is the cost of that bachelor's degree. In 1975 average tuition for a 4-year bachelor's degree from a public university was $2,168 or adjusted for inflation, $11,646 whereas average tuition for the same 4-year bachelor's degree from a public university is now $41,692. The same education costs $30,000 more now than it did when Boomers went college. This increase in price of tuition has led to an unfortunate inevitability, student loans.

The student loan crisis has been a hot-button topic for years but has come to the forefront of economic discussion since 2020 at the onset of the COVID-19 pandemic. Student loan borrowers own approximately 1.6 trillion dollars of debt which has exasperated financial issues in middle class America. Student loans have almost always been an issue but over the last 50 years the price to attend college has increased significantly leading to an increase in student loan debt. If college costs more and wages haven't increased, then the money for college has to come from somewhere and for the majority of college students it has to come in the form of student loans. The increase in college tuition also has a direct impact on ones ability to be approved for a mortgage as lenders will consider someone with a large amount of student loans as risky and would likely not approve them for a loan or approve them for a much smaller loan. Recent student loan forgiveness has helped with this issue but even with student loan forgiveness, college still costs significantly more than it did 50 years ago and this issue will continue to affect Millennials and younger generations unless something more drastic is done.

3. Rental Costs Are High

graph showing the rise in the cost of rent. For the vast majority of people, you cannot afford to buy a house as soon as you move out of your parents' house. So if you can't afford to buy, you need to rent. For most of the past 50 years, renting provided a place to live at a more affordable price allowing you to set aside some money to eventually use as a down-payment for when you are ready to purchase a home. This has been the cycle that older generations have followed and has worked for them. But over the past 10 years we have seen an increase in the price of rent all across the country pushing this dream of home-ownership further and further down the line.

Some of you are shaking your head sadly at this point, saying “What has the world come to that we can’t even be bothered to pick up a phone?” You’re right. It’s sad, but it doesn’t have to be sad because despite the fact we’ve degraded into lazitivy as a society, social media still provides a way for us to engage with friends and family. It offers connectivity.

To help put this into perspective, the average cost of rent for a 1-bedroom apartment in 1975 was $156 per month or adjusted for inflation, $838 per month whereas the average cost of rent for a 1-bedroom apartment is now $1,769. Millennials are paying almost $1,000 more per month for the same housing situation. Top financial experts agree that you shouldn't spend more than 28% of your gross income on housing. Taking that into consideration, in order to afford the average 1-bedroom apartment you will need to earn a gross income of approximately $6,000 per month. The long followed plan of saving a little each month for a down-payment is now considered a luxury for Millennials and has forced us into a cycle of perpetual renting with seemingly no end in sight.

4. Median Housing Prices Have Increased

An average single family home. Painted grey with natural wood door and trim. To add insult to injury, the median price of a single family house (what is considered to be a good starter home for most American families again increased significantly. Not putting into account the incredible housing surge that happened in 2020 at the begining of the pandemic, the median price for a single family home is currently $348,000 compared to $38,000 (or $204,000 once adjusted for inflation) in 1975. That is an increase of approximately $140,000. That increase equates to an increase of just over $700 to your monthly mortgage payment (this estimate can be more or less than $700 depending on current interest rates.) With such a large increase in median house price, also affects the amount of down-payment that is recommended to put down when purchasing a house. According to Rocket Mortgage, a buyer should put 20% down on a house in order to avoid paying private mortgage insurance. Which, when you do the math, comes out to $69,600 or almost 1 year's gross salary for the average Millennial. As opposed to those buying homes in 1975 who needed a little more than half of 1-year's gross salary.

When taking in to account everything that is outlined thus far in this article with the rising cost of everything from college to rent and even everyday living expenses like food (which we haven't gone into at all) and a wage stagnation, how can one be expected to save an entire year's gross salary? This problem is so much bigger than Millennials buying too many lattes. Everything is more expensive now than it was 50 years ago and wages haven't kept up with the rising prices.

5. Supply is Less

Bright red background with a hand holding a piece of paper with the Air BnB logo on it. Lastly, more and more Boomers are opting to keep their homes as rental properties or vacation homes rather than selling them and downsizing. This coupled with the increased cost of building a home, has created a massive supply and demand issue for those trying to buy a home. It comes down to the basic, universally understood economic principle when there is a decrease in supply, the demand increases. In addition to this, hedge funds and other investment groups are adding single family homes to their real estate portfolios meaning, Millennials aren't just competing with other Millennials for single family homes, they are also competing with multi-million dollar investment portfolios. This increase in demand has cause a tremendous up-tick in the cost of homes and was very apparent in the immediate aftermath of the pandemic when these types of investors were purchasing houses for tens of thousands of dollars more than asking price and offering full cash offers. The average Millennial cannot compete with investors like this and many of us have lost out on houses because of this.

The rise of Air B&B has also added to the continued decrease in housing supply. This has especially affect tourist cities like New Orleans where according to The Guardian the amount of Air B&Bs in the city raised from 1,905 to 6,508 over the span of three years. Because of this, the amount of affordable homes available to those who live in New Orleans has dropped significantly and has greatly decreased the chance of home ownership to those who live there. The demand has exasperated the supply and that has disproportionately affected Millennial and younger generations leaving us feeling hopeless to the idea that we may never be able to afford a home.

Conclusion

Magazine cover of a boomer waving their fist angerly at Millennials with the title on the magazine cover reading OK Millennial Millennials are often pegged as needy and entitled especially when it comes to homeownership when in reality, we just want to own a home. Under the current systems, the idea of homeownership is borderline impossible. We are tired of hearing the same rhetoric that we have heard our entire lives and are simply asking that our issues and concerns are heard, and changes be made. We believe that we deserve similar circumstances that existed when older generations entered the housing market, and we don’t think that’s too much to ask. And if it makes you feel better, on behalf of all Millennials, we will GLADLY give up lattes in exchange for a home.

5 Reasons Why Millennials Can't Afford Homes

Written by Scott Houghton

1. Wages Have Stagnated

2. College Tuition Has Increased

3. Rental Costs Are High

4. Median Housing Prices Have Increased

5. Supply is Less

Conclusion

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