A recent article in Forbes decrying the possibility of millennials becoming a “generation of renters” is the latest piece of media hand-wringing on this topic.
The author marshals plenty of evidence that young adults, those living in major coastal cities in particular, are facing mounting barriers to obtaining mortgages and buying their first home. While the collapse of the housing market had truly devastating effects on existing home owners and the economy at-large, this supposed crisis of young renters never made much sense to me.
I was one of those millennial children who grew up in suburban houses that had mailboxes, yards, and all the other trappings of a traditional middle class existence. When I moved to Washington, DC, however, I quickly realized that median home prices were going to make ownership unrealistic for many, many years. The result? I rent a beautiful row house in a vibrant urban neighborhood. I have a big patio, friendly neighbors, plenty of room, and even a mailbox.
I say this to point out that stories like the one from Forbes often conflate a lot of different things in unhelpful ways. Household formation and the experience of living in a traditional house are assumed to be inseparably linked with having a highly-leveraged, speculative investment that you also live in. That simply is not the case. There’s nothing preventing millennials from starting families and renting houses with yards, to say nothing of the many urban 20-somethings who are perfectly comfortable living in an apartment building where someone else vacuums and takes out the trash.
The most glaring problem with this fear-mongering over the loss of the American dream is the assumption that home-ownership is the path to wealth creation and economic security. After the devastating housing crash of the last few years, though, who really believes that?
This isn’t anecdotal evidence, either. Yale economist and housing market expert Robert Shiller conducted a rigorous study and found that over the last century, long-term investments in residential housing have only barely exceeded inflation. With the exception of a few bubbles, which no one can predict effectively, homeowners would generate more wealth by renting and investing the difference in the stock market. This obviously isn’t a risk free strategy either, but nearly every 10-year window has seen the market outperform residential real estate.
Via CNN Money
So let's stop pushing young people into mortgages and lamenting millennials' loss of the American dream. Youth unemployment and existing underwater mortgages are real problems, but 20-somethings living in rentals is perfectly fine.
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