The path to financial stability for today’s young adults looks vastly different from that of previous generations — and housing is a major factor in this generational divide. Bundled with rising costs in utilities, groceries, and basic essentials, the housing affordability crisis is keeping young adults from being able to gain equity, increase wealth and set up their futures for financial success. Therefore, this divide is affecting major life decisions for the country’s young adults – including whether or not to start their own families.
In “The Impact of the Real Estate Market on Fertility,” a study done by Lisa Dettling and Melissa Schettini Kearney found that “a ten percent increase in home prices leads to a one percent decrease in births among non-homeowners in an average metropolitan area.“
The wealth gap isn’t just a fiscal issue, it’s an issue that’s leaving Millennials and Gen Z behind — which could lead to social issues, disillusionment, and a decrease in population and family formation.
The Changing Landscape of Generational Wealth
The current economic system seems to favor those who already have wealth – mostly Gen X and Boomers because the tax system benefits those with significant assets, while middle-class earners with high incomes face steep tax rates. Capital gains and mortgage interest deductions also primarily benefit older, wealthier individuals who own homes and stocks, while young people, often renters earning current income, miss out on these benefits.
Understanding the disparity in wealth accumulation between generations is important so that all generations can work together to set realistic goals on the path to homeownership or investment:
- According to MSNBC News, the average 70-year-old is 72% wealthier than they were 40 years ago, while those under 40 are 24% less wealthy.
- For the first time in United States history, 30-year-olds aren’t doing as well financially as their parents did at the same age.
- Housing prices have skyrocketed, with the average price increasing from $290,000 to $420,000 in just four years, making homeownership increasingly unattainable for young adults.
In a segment of “Freddo at Night” from the “Daily Freddo” series, host Kasia Melikidou states, “For a lot of people, it has become impossible to be able to afford the basics despite having multiple incomes. In 40 years, the average house price has increased by 14 times, whereas full-time salaries have only increased by 4.7 times.“
This stark comparison underscores how the dream of homeownership is slipping further away for average earners. It’s not just about the never-ending cycle of working to pay bills; it’s about the lack of security that comes with financial instability. As one heart-wrenching testimony revealed, “I’m working just to basically pay bills just to survive.“
The Power of Parental Investment
Gen X and Boomers who are in a position to help their children or grandchildren purchase a home should seriously consider doing so. While some may worry about spoiling their family members, helping them invest in real estate could be the difference between them starting their own families or not.
Here are just a few ways Gen X and Boomers can help their Millennials, Gen Z, and even Gen Alpha family members.
- Building Generational Wealth: Homeownership remains a key factor in long-term financial security and life milestones like starting a family. By helping children enter the housing market earlier, parents can kick-start their wealth accumulation.
- Better Financial Positioning: Gen X and Boomers often “look better on paper” than their children or grandchildren. Using this financial advantage to secure property can benefit the entire family. Co-signing a mortgage is also a helpful way to assist, helping the younger generations secure better interest rates or qualify for larger loans.
- Investment Opportunity: Purchasing a property can serve as an investment, potentially appreciating over time.
- Providing Down Payments: Even a modest contribution can significantly reduce monthly mortgage payments.
- Purchasing Properties Outright: Some parents may choose to buy homes for their children to live in, potentially as a rent-to-own arrangement.
- Preserving Family Wealth: By helping children enter the property market, parents can ensure that family wealth is invested in appreciating assets rather than being eroded by high rental costs.
While it may seem counterintuitive to some, parents who can afford to help their children buy a home might be making one of the smartest investment decisions possible – and help bridge the generational wealth gap to provide their family with the foundation they need to thrive, in an increasingly complex economic environment.
If your family is interested in kicking off a property search — whether it be for a primary residence, second home or investment property — Platinum Properties would love to help advise on ways to set your family up for success and build generational wealth through real estate. New York City is one of the most competitive, but profitable, real estate markets in the world, and we’d love to talk more with you about how you can capitalize on opportunities in the market.
