States, cities want to help Generation Z buy their first home

A quick scroll through TikTok reveals, anecdotally at least, that Generation Z is pretty cynical when it comes to homeownership. Posts run the gamut from creators complaining about investment companies scooping up homes and pricing out first-time homebuyers to those sharing surveys that find income, home prices and savings as barriers to obtaining that starter home. In one post, a popular creator lists out scenarios in which Gen Zers and young millennials could afford to become homeowners, including a significant market crash that slashes prices. It’s pretty bleak stuff.

Surveys bear out this widespread perception among the generation that homeownership is out of reach. A recent poll of more than 600 Gen Zers—the oldest of whom are 27 years old—found that they are significantly more likely than other generations to say homeownership is unimportant. Challenging housing costs have led Gen Zers to deprioritize it.

“It feels like an unattainable dream, so they're just going to focus on other areas of investment,” said Mikaela Arroyo, director of the New Home Trends Institute at John Burns Real Estate Consulting. “They've really put it out of their minds because they don't feel like it's realistic.” 

The strange thing is that this belief persists even as homeownership among members of Generation Z appears to be doing OK: The real estate company Redfin reported earlier this year that the share of Gen Zers in their mid-twenties who own homes is slightly larger than Millenials and Gen Xers when members of those generations were in their mid-twenties. In Rust Belt cities like Cincinnati and Pittsburgh, buyers under 35 were responsible for nearly half of new mortgages.

But those numbers leave out a lot of Gen Zers, according to Arroyo.  Reports like Redfin’s usually only look at young people who are the heads of their own household, meaning they live alone or with a significant other, she said. When only that group is included in a study, then sure, a larger share own their homes instead of rent compared to previous generations. But when researchers consider all Gen Zers, that's when the picture grows more complicated. When the entirety of the generation is accounted for, it no longer leads other generations in homeownership. 

What’s more, home prices are higher than they’ve ever been. They are 47% higher than before the pandemic, according to a June report from the Harvard Joint Center for Housing Studies, and interest rates were 7.2% in May, up from just under 3% in 2021. As a result, Gen Zers in general are growing more hesitant to enter the market. The inflated costs are shaping the way they view homeownership, said Arroyo.

It is also shaping policy, and more and more state and local governments have recently moved to address the issue and find ways to help young and first-time homebuyers.

“A lot of the ways we're seeing municipalities help is by approving some of that denser or smaller product so that homes can be built at a more attainable price point,” Arroyo said. 

Zoning reform has been a hot topic in cities and even some states. Changing regulations can increase density by allowing smaller yards or multiple accessory dwelling units on a single plot. Some initiatives go a step beyond land-use reform and invest in the actual development of new homes. 

In Utah—home to some of the highest housing costs in the country—Gov. Spencer Cox’s administration is aiming to build 35,000 starter homes by 2028. To reach this goal, builders will likely need to rethink what their typical plans look like, including smaller units and yards, reported The Salt Lake Tribune. Rochester, Minnesota, is taking a similar approach at the local level. The city council recently approved a $4 million contribution to develop new housing that will be affordable to residents making 115% of the area median income.Down payment assistance programs are becoming more common in many cities and states, as well as initiatives that seek to help future homeowners start saving. 

A new Ohio program, for example, works with dozens of banks and credit unions to provide high interest rates on savings accounts for participants who open one with the intention to purchase a home. Participants use the savings to cover down payments or closing costs and are also eligible for an income tax deduction of up to $5,000. The program launched in January and nearly 12,000 Ohioans have enrolled, according to Laura Martine, press secretary for the Ohio Treasurer’s Office.

Participants have to be at least 18 years old. There are not income requirements, but those who enroll in the program have up to five years to use the account for a down payment or closing costs. 

“I think the five-year timeline encourages people to start planning for their future, but the near future,” Martine said. “And so hopefully in the next couple of years, we'll start seeing people using these accounts.”

The report from the Harvard Joint Center for Housing studies offers a few policy recommendations, including calling for regulatory reforms to increase density. It also describes a need for “support for private sector innovations to bring down construction costs and create a greater variety of housing types at a wider range of prices, possibly through greater adoption of manufactured and modular housing techniques.”

The housing industry is also looking for ways to make housing more attainable by exploring less costly materials or building smaller units, Arroyo said. These new starter homes may not look exactly like what young homebuyers grew up envisioning, she added, but builders are “making better use of space so that you still have everything you need in it.”