The simple aspiration of potentially owning a home in the future serves as a powerful incentive, influencing individuals' employment, spending, and investment habits, yet a significant number of Americans are abandoning this aspiration, according to researchers.
TL;DR
- Younger Americans are abandoning homeownership aspirations due to affordability crisis, not just postponing it.
- Loss of homeownership hope leads to reduced savings, work effort, and increased "doom spending" or high-risk investments.
- Giving up on homeownership entrenches wealth inequality across generations, creating a cycle of limited financial resources.
- Even high earners experience financial anxiety, struggling with debt and survival strategies despite illusions of affluence.
Seung Hyeong Lee of Northwestern University and Younggeun Yoo from The University of Chicago have published a paper published earlier this month indicating that younger demographics aren't simply postponing buying homes; they're progressively abandoning the idea altogether.
That’s as the housing affordability crisis has put ownership out of reach for millions. The median house price was 5.81 times the median household income in 2022, up from a ratio of 4.52 in 2010 and 3.57 in 1984. And that doesn’t include related costs that have grown like insurance.
When owning a home appears unattainable, individuals' actions move from striving to accumulate sufficient funds for an initial deposit, as Lee and Yoo caution. Conversely, tenants who maintain aspirations of homeownership often exhibit greater financial prudence and continue to diligently pursue their careers, thereby positioning themselves for eventual ownership.
“These dynamics underscore the powerful role of hope: belief in the attainability of homeownership shapes savings, work effort, and investment decisions in compounding ways over the life cycle, with profound implications for long-run wealth inequality,” they wrote.
That helps explain elevated consumption among millennials and Gen Zers who are “doom spending” on lavish purchases or vacations. In fact, the share of millennial renters with zero savings for a down payment jumped to 67% in 2023 from 48% in 2018, according to Apartment List data.
Concurrently, calls for greater equilibrium between professional and personal life, alongside pronouncements of “quiet quitting”, align with a reduced belief that increased effort will yield rewards. Lee and Yoo discovered that among tenants possessing less than $300,000 in net worth, the proportion acknowledging minimal work output stands at 4%-6%, a figure double that observed among property owners.
As aspirations for owning a home diminish, novel investment platforms and the widespread availability of speculative crypto assets have opened up another path for wealth accumulation.
“If steady saving and traditional asset accumulation no longer suffice to secure a home, some households may instead pursue high-risk, high-return strategies—such as investing in cryptocurrencies—as a last resort,” Lee and Yoo said. “For those priced out of the housing market, gambling on improbable but potentially transformative gains may appear rational, particularly among younger cohorts.”
Living with very little savings.
Researchers have found minimal disparity in wealth between younger renters who are unlikely to buy a home and those who are likely to. However, the alterations in their actions throughout their lives lead to significantly divergent outcomes.
Quitting makes it more challenging to break free from paths leading to limited financial resources. Researchers observed that tenants with slim chances of property ownership maintain virtually no accumulated wealth for a significant portion of their lives, “effectively living hand-to-mouth with negligible asset accumulation.”
This tendency often persists, Lee and Yoo commented. Offspring of parents experiencing despair begin with diminished assets and a greater inclination to surrender. Conversely, the children of property owners are similarly predisposed to become property owners themselves.
“In this way, giving up homeownership can act as a transmission mechanism that entrenches and amplifies wealth inequality over generations, potentially leading to a society in which homeownership becomes increasingly out of reach for households without intergenerational transfers,” they explained.
By the time they reach 40 years old, the majority of tenants have decided if they still possess a reasonable chance of owning a home. Lee and Yoo suggest assistance for those tenants on the edge who have become discouraged but might still move into the optimistic group with sufficient funds to help them cross the barrier.
Their findings contribute to the increasing indications of financial unease accompanying the broad cost-of-living challenges, extending even to affluent individuals.
A recent survey from the Harris Poll indicated that numerous individuals earning six figures are privately struggling. One of the discoveries was that 64% of those making six figures stated their earnings aren't a benchmark for achievement but simply the lowest requirement for survival.
“Our data shows that even high earners are financially anxious—they’re living the illusion of affluence while privately juggling credit cards, debt, and survival strategies,” Libby Rodney, the Harris Poll’s chief strategy officer and futurist, said in a statement.
And in a viral Substack post last week, Michael Green, chief strategist and portfolio manager for Simplify Asset Management, stated that the real poverty line should be about $140,000 annually in household earnings to cover the higher expenses for housing, healthcare, childcare, transit, and university.
Concurrently, individuals in America who reside beneath Green's poverty benchmark continue to lag, despite their upward movement on the earnings scale.
“Our entire safety net is designed to catch people at the very bottom, but it sets a trap for anyone trying to climb out,” he explained. “As income rises from $40,000 to $100,000, benefits disappear faster than wages increase. I call this The Valley of Death.”