Is homeownership inherited? A tale of three millennials
Our latest research on millennial homeownership quantifies something that many already suspected: whether your parents are homeowners influences whether you’ll be a homeowner. And your parents’ wealth influences your future homeownership status.
A child’s likelihood of being a homeowner increases 8.4 percentage points if their parents are homeowners, and a 1 percent increase in parental wealth increases a child’s likelihood of being a homeowner by 0.009 percentage points. This has significant implications for understanding and designing solutions for the deep and persistent gaps in homeownership rates.
What does this mean in the real world?
Take two 25-year-old women, Jessica and Ashley, each of whom recently moved out of their parent’s home. Jessica and Ashley are both college graduates, are of the same race, and have the same income.
Jessica’s parents are homeowners, but Ashley’s are not. According to our research, Jessica’s likelihood of owning a home, from this factor alone, is 8.4 percentage points higher than Ashley’s.
A young adult’s odds of homeownership are highly correlated with their parent’s homeownership. Without controlling for such factors as age, income, education, marital status, and race or ethnicity, there is a 17 percentage-point gap between the homeownership rate for young adults whose parents are renters and young adults whose parents are homeowners.
Parents’ net worth also matters
A third 25-year-old woman, Amanda, is identical to Jessica in educational achievement, age, race, and income, and her parents are homeowners. But Amanda’s parents have a net worth of $50,000 (the US median) while Jessica’s parents have a net worth of $97,300 (the US mean).
Jessica has, from this factor alone, a 1.75 percentage-point higher likelihood of being a homeowner than Amanda. This difference might seem small, but wealth gaps in the US are significantly larger than the difference between the mean and the median.
In 2016, the median wealth of white households was 10 times higher than that of black households, which would create a 9 percentage-point difference in the likelihood of owning a home between black and white children, after controlling for age, income, education, and marital status.
Our study shows that the homeownership rate for young adults increases linearly with increases in parental wealth. Only 14 percent of millennials whose parents have a net worth below $10,000 are homeowners, but 36 percent of millennials whose parents have $300,000 or more in net worth are homeowners.
What can we do about these findings?
This analysis provides insight into how homeownership starts and is sustained. We now know that a family habit of homeownership is passed down among generations. And we know that parental net worth increases a child’s chances of homeownership.
But we don’t know exactly how homeownership or wealth affects adolescents:
- Did Jessica learn about the importance of owning a home when she went house shopping with her parents?
- Did Ashley assume homeownership was not for her when her parents called the landlord to fix the leaky faucet?
- Did Amanda overhear conversations about cutting back on eating out to pay the mortgage that helped her learn how to budget for homeownership?
- When and how did parental financial support influence their decision to own or rent?
Understanding the significance of parental wealth and homeownership also helps us understand how homeownership gaps—among different races and ethnicities and between more and less educated Americans—grow and grow quickly.
If homeownership declines 8 percent from one generation to the next, this decline accelerates over time. This trend is evident in our research.
One of our most troubling findings is that the homeownership gap is growing between racial and ethnic groups, even as our nation becomes increasingly diverse. The homeownership rate of white millennials is 37 percent, compared with 27 percent for Asians, 25 percent for Hispanics, and 13 percent for blacks.
And while 18-to-34-year-old millennials in all racial and ethnic groups have experienced a drop in homeownership since 2005, the homeownership rate among black households headed by 45-to-64-year-olds (who are most likely to be parents of millennials) dropped significantly over the past 15 years.
We can see the intergenerational factor at play here. In our dataset, white parents had an 84 percent homeownership rate, Hispanic parents had a 64 percent rate, and black parents had a 48 percent rate. In addition, the median wealth for white parents is $171,000 compared with $20,700 for Hispanic parents and $17,600 for black parents. The lower homeownership rates and wealth of parents of Hispanic and black millennials put them behind from the start.
Our results provide strong evidence that the intergenerational transfer of homeownership and wealth reinforce and exacerbate existing gaps. Because homeownership is an important tool for building wealth, our results suggest that from early on, children of less affluent renter households fall behind in accessing a critical opportunity to build wealth.
We need to better understand how this inheritance factor works so we can craft policies that will slow if not reverse widening gaps in prosperity.
Photo by CSA-Printstock/iStock,