October 15, 2015
Millennials, Paycheck to Paycheck
The National Housing Conference and the Center for Housing Policy issued a report, Paycheck to Paycheck: A Snapshot of Housing Affordability for Millennial Workers. The report opens,
Public perception of millennials tends to paint a picture of highly educated hipsters living in city micro-units, or perpetual youth living in their parents’ basements. However, those stereotypes do not adequately portray the diversity of race, education, income, family types, living arrangements and employment among millennials.
In fact, most millennials do not live in micro-units or with their parents. Many are getting married and starting families. Even though millennials are more highly educated than previous generations, many face limited job prospects. And many millennial workers are in relatively low-paying jobs and have difficulty finding housing they can afford. As a result, they spend a burdensome share of their paycheck on housing, leaving little for other expenses, including student debt payments, savings for a mortgage down payment and childcare. (1)
The report makes a variety of conservative assumptions. For instance, it assumes that a loan to value ratio of 28% of income and it assumes that households have only one worker. It proposes a variety of policies to expand mortgage credit, affordable housing subsidies and zoning reforms to increase the supply of housing.
Given that the report comes from two affordable housing advocacy groups, its policy proposals to increase the supply of affordable housing for millenials are not surprising. But I do think it is worth thinking about household formation a bit more in this context.
Many of us do not give much thought to how households form. When we think about our own experience, we might conclude that when we had enough money to get our own place we did just that. But, in fact, the rate of household formation is significantly affected by broader economic forces, namely the state of the job market. If an individual does not believe that her income is stable, she will delay creating her own household. Thus, she might live with her parents or share an apartment with others. Reports like this one assume that there is a natural rate of household formation just as many people assume that there is a natural rate of homeownership. As a general rule, those people generally assume that higher is better.
It might be worth considering that household formation and homeownership rates are driven by the interplay of much larger forces. Instead of trying to move those rates for their own sake, it might be more important to look at fundamentals in the economy, like the unemployment rate and wage growth, and let household formation and homeownership rates take care of themselves.
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