GET a job, start a family, buy a house — the American Dream was once a straightforward path. Homeownership has long been a staple and feasible investment for young adults.
But with financial inequalities rising, many millennials and members of Gen Z are questioning if buying a home in the United States is possible — or if they want to aim for it at all.
The many factors contributing to the decreasing affordability of American homes can be difficult for any individual to tackle. But with government assistance, more young adults may be able to dream of gaining their own property and forever home again.
It’s no secret that the wealth gap is on the rise. In the United States, the incomes of the top 1 per cent grew five times faster than that of the bottom 90 per cent. This disproportionate earning, in addition to surging home prices, is turning homeownership into a significantly more difficult goal to achieve.
This is especially true for young adults, many of whom work entry-level and minimum wage jobs. On average, most minimum wage workers must work two full-time jobs just to afford the rent for a one-bedroom apartment without spending over 30 per cent of their income.
Young and rising adults are also facing drastically different financial circumstances than the generations before them.
In just a decade, college costs rose by over 25 per cent, making getting a well-paying job more difficult. When starting a family, just giving birth can cost over $14,000, which has likely contributed to a declining birth rate.
With two essential parts of the American dream out of reach for many, it’s no surprise that the possibility of homeownership is becoming limited.
Millennials and Gen Z faced two recessions, too. The 2008 recession collapsed the housing bubble. And the COVID-19 recession created massive unemployment while a housing boom occurred.
Many investors are swooping into the U.S. real estate market to buy up available properties for their own gain. In 2018 — even before the current boom — investor purchases exceeded all historical levels. Some zip codes, like one in Atlanta and others near job centers, have seen investors making up 90 per cent or more of real estate purchases.
Real estate is such a lucrative venture that shell companies (which were only recently banned) often used real estate to launder money.
When real estate is purchased solely for investment purchases, home prices in select locales can increase greatly. This further pushes the American Dream away for locals, including young adults.
Many millennial and Gen Z consumers are turning to renting as a long-term solution. Renting eliminates some of the burdens of homeownership. For example, renters often only need to budget for utility bills like electricity, cable, and internet or worry about hiring contractors for maintenance. These costs often cause homeowners to become “house poor,” which means they’re far too much of their income on housing.
It’s usually easier to meet rental requirements than mortgage requirements, too. From passing home appraisals to meeting credit score and down payment requirements, there are often many things that give homebuyers cold feet when going through the process. But for some people who have been renting, they can be worth it.
However, the popularity of renting encourages more investors to buy property, contributing even more to rising house costs. Plus, when young adults are spending aimlessly on rent, which can cost as much as mortgage payments in many cities, saving up for a home can become significantly harder.
While some members of younger generations are turning away from homeownership due to its many barriers, buying a home can still lift Americans out of the cycle of spending that renting creates. Broader government action can increase the accessibility of the real estate market for millennials and Gen Z.
Banning shell companies was only a small step. Placing further limitations on investment can be another.
Once this tax was implemented, Vancouver home prices dropped significantly. Implementing such a tax on US investors could create a similar effect.
Rental cost control can also keep necessary living expenses from preventing homeownership. Governments can also offer more financial incentives, such as tax credits for first-time and low-income homebuyers can further break down barriers.
Only when younger generations can easily overcome the barriers to housing can the American Dream truly exist again. But as the real estate market stands, investors are driving up prices in key areas, and the financial burdens that young adults face are difficult to tackle.
For many members of future generations, homeownership truly is out of reach. The bigger question may be whether government officials will step up to protect the American Dream or protect existing land ownership standards instead.
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