With home affordability increasingly out of reach, many young adults are making choices that are reshaping the economy — and mostly for the worse — a new research paper says.
They don’t think they’ll ever be homeowners. So they stop trying, and focus on the here and now.
That’s the interpretation put forth by economists Seung Hyeong Lee and Younggeun Yoo — doctoral candidates at Northwestern University and the University of Chicago, respectively — who built a mathematical model of consumer behavior. When people conclude they will never be able to afford a home, they put less effort into their jobs, tend to spend more on luxuries and do less long-term saving, and are more likely to invest in riskier assets such as cryptocurrencies, the economists’ findings suggested.
“When housing becomes unattainable, people do not simply stay renters — they often change how they live, work, and plan for the future. These changes compound over time,” the two wrote in “Giving Up,” a draft of which they posted online last month.
While 84 percent of the people born in 1950 became homeowners at some point in their working lives, the researchers estimated that only 74 percent of 1990 babies will follow suit. Relying on a complex model they designed that attempts to take into account factors such as mortgage debt, volatile investments and homeowners’ desire to leave an inheritance to their children, the researchers charted behavioral patterns across generations. By the time 1990’s millennials turned 30 in 2020, they wrote, 15 percent of them had already given up on ever buying a house.
The consequences of giving up
Lee and Yoo are high school friends who grew up in South Korea and whose research focused on the economic consequences of unattainable homeownership.
Using a database that has tracked the transactions of more than 500,000 Americans since 2014, they examined what happened when home prices rose in a given county. In communities where such spikes occurred, they discovered that renters within the top income quintile (who earned more than $7,500 a month, on average) pulled back on credit card spending, especially on luxuries and non-necessities. This suggests they were trying to save more for a home purchase, the researchers said.
But renters in the lowest income quintile (generally those earning less than $3,000 a month) did the opposite: They upped credit card spending, by 3 percent on average, the paper said.
In a time of relatively high inflation, there are many possible explanations for shifting spending patterns, and not every researcher embraces this analysis. Stefanie DeLuca, a sociologist at Johns Hopkins University, said those findings oversimplify consumers’ priorities. “If you’re not saving and deferring to buy a house, you’re spending it on other kinds of enrichment activities for your kids, supporting folks in your family who are going through a tough time — we just don’t know what this is about, and I’m not sure it’s a good or bad thing,” DeLuca said. “There may be other rationales and perfectly, to them, optimal framing about how they’re spending this money.”
For example, a spike in home prices during the pandemic dovetailed with relatively high mortgage rates, putting homeownership out of reach for many Americans. Inflation also soared in other parts of the economy, peaking in mid-2022, raising the cost of groceries, electricity, rent and health care.
But the report identified other behavioral differences apart from spending between those who own property and those in the “giving up” category. The homeowners surveyed were consistent across income levels on whether they should try their hardest at work, with 97 percent saying yes to some extent and 3 percent declaring effort to be “not important.”
Renters were much more likely to discount work effort when their net worth fell below $300,000 — the threshold above which people generally believe a home is within reach, the paper says. Nearly 6 percent just below that benchmark discounted the importance of hard work. Those above it, on the other hand, leaned into it at higher rates than homeowners, with only 2 percent saying effort didn’t matter.
Net worth is the difference between a person’s assets (car, home, investments, cash, etc.) and what they owe (mortgage, credit card and other debt). U.S. households headed by people younger than 35 had a median net worth of $39,000 in 2022, Federal Reserve data show. Among those 35 to 44, it’s $135,600.
Lee and Yoo say the disparity suggests that renters who think they will eventually be able to afford a home — the U.S. median stands at $410,800, though prices are far higher in many major metro areas — are more motivated at work and committed to saving than those who’ve given up on the idea.
The researchers also wanted to know who invests in assets like crypto, which is known for its volatility. But with high risk comes high reward: Bitcoin, for example, was roughly $75,000 in April and surged past $126,000 in October. Now it’s hovering near $89,000.
Their findings suggested that renters who feel homeownership is out of reach are the most likely to embrace cryptocurrency, which has been heavily promoted in recent years by President Donald Trump, Larry David and many others.
Homeowners appear more likely to buy crypto as their wealth grows. At the high end, just over 6 percent of rich homeowners own crypto. Among renters, the $300,000-and-above crowd is about as likely to buy crypto as homeowners, suggesting they’re less interested in riskier bets as they save for a home. But those in the $200,000-to-$300,000 range are the most likely crypto buyers, with nearly 10 percent investing.
A targeted housing subsidy
Lee and Yoo’s paper proposes that the U.S. government consider grants for people who are close to “giving up,” arguing that it could help put them on the path to homeownership.
“This one-time small help can make them more disciplined and more hardworking their entire life, eventually becoming a homeowner,” Yoo said in an interview.
Down Payment Resource CEO Rob Chrane, whose company helps connect prospective home buyers with aid programs, said the economists’ suggestion sounds a lot like the low- or no-interest loans that cities and states already offer to qualified first-time buyers. “There’s plenty of money: 2,600 programs” across the country, Chrane said. “I don’t think we need more programs. I think we need a better job of communicating the programs.”
But Lee and Yoo said they envisioned such a subsidy going to 20-year-olds; that’s more than a decade younger than the typical first-time home buyer. At that age, it would take a small amount of money to bridge the gap between people who are on track for homeownership and those who are not.
The subsidy would ideally go to 20-year-olds whose net worth is about zero, they said, since those already in debt would just pay for immediate needs rather than saving for homeownership, while those who have assets at 20 are already doing well.
That’s better than existing programs, in Yoo’s view, because people might give up long before they can access such programs: “If you give them a down payment subsidy, you’re basically saying I’m going to lower your hurdle, after you accumulate wealth for 10 or 20 years.”
But Moody’s economist Cristian deRitis said giving 20-year-olds housing grants doesn’t address the fact that there are simply too few houses available. “By our calculation, we need to add 2 million housing units to the economy. … There aren’t enough houses for you to become a homeowner,” deRitis said.
“Sure, if you can help someone over the hurdle of homeownership with a subsidy, that’s useful, but … you have a bigger pool of potential buyers and they’re bidding with each other,” he added.
In other words: Subsidies might just drive housing costs up further.
Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia Business School, was intrigued by the students’ work, saying it echoes earlier findings about the value of homeownership. “The renters could have done just as well, if only they had invested that money in a 60-40 stock-bond portfolio. But they didn’t,” he said. “You could be a renter and you could be investing your money wisely. … It’s just that that seems very hard for people.”
At 29 and 30, Yoo and Lee are just a bit younger than the 1990-born group that was the focus of their paper. One is a homeowner, and one is a renter.
But Lee, the renter, said their research is more about mindset, not just whether someone owns a house. “We think if households perceive homeownership as less achievable, they consume more, [and] because of this behavior, the wealth inequality has been widened. Even with very small differences in wealth initially, that can lead to great differences in wealth later in people’s lives,” he said.
For himself, he hasn’t given up yet.
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