An eye-popping 38% of recent homebuyers under age 30 used either a cash gift from a family member or an inheritance in order to afford their down payment. This is according to a Redfin commissioned survey of recent movers conducted in Spring 2023. First-time homeownership has become increasingly expensive, which has shut the door to homeownership for young people without family money. As a result, a large share of young homeowners can be labeled “nepo-homebuyers,” meaning they received family money to purchase a home. This phenomenon contributes to intergenerational wealth inequality and limits economic opportunities for young people and their families.
Young Homebuyers Often Have Help From Family
It is rare for a young person to be able to afford a home. Senior Americans (65 and older) are about two times more likely to be homeowners than young Americans (under 35). And oftentimes young people who own their home had help from family. In the Redfin survey, which asked how recent homebuyers accumulated the money for their down payment, 509 respondents were under the age of 30. Among those young homebuyers, 23% used a cash gift from family members and 21% used inheritance money for their down payment.
I admittedly fell into the category of a nepo-homebuyer. I bought my first home at 27 in 2015 with help from my mother. She was experiencing health problems and couldn’t live alone, so she sold her condo and gave me the proceeds to buy a home we could live in together. Without my mother’s money, saving up for a down payment would have taken me years. But instead, I was able to purchase a home and secure my position as a homeowner. This allowed me to build equity, which I eventually used to buy a home for my mother to reside in when she was able to live independently again.
Starter Homes Are Increasingly Unaffordable
Had I delayed buying my first home, I would have faced an increasingly unaffordable housing market. The income needed to purchase a starter home has been steadily increasing for over a decade and jumped 13% in the last year alone. As a result, many young people turn to family for help when getting onto the first rung of the housing ladder.
Young homebuyers without family money face a difficult road when building intergenerational wealth. Across the United States, certain neighborhoods offer children from low-income families a better shot at growing up to be high earners. Harvard economist Raj Chetty has identified these places as high-opportunity neighborhoods. And according to an analysis from Redfin, these high-opportunity neighborhoods have become unaffordable to the families who could benefit the most from raising children in these places. The share of affordable homes for sale in high-opportunity neighborhoods declined from 37% in 2013 to 13% in 2022.
Homeownership Odds Set At Birth
Young people needing family help to afford a home is part of a bigger problem regarding wealth inequality. Research from economists at The University of Chicago found that children born to homeowner parents are significantly more likely to be homeowners in adulthood. And according to a 2021 Redfin survey of about 1,500 homeowners, 79% of current homeowners had a parent who owned their home, and 67% had a grandparent who owned a home.
Many young people buying homes today had grandparents who bought homes before the Fair Housing Act was passed, when it was still legal to discriminate against homebuyers on the basis of race, religion, national origin, disability status, or family status. And since homeownership persists across generations, the inequities of the past live on.
My parents bought their first home in the 1980s, well after the Fair Housing Act of 1968, when it was technically illegal to discriminate based on race. Still, my Black father was rejected by white home sellers. It wasn’t until my white mother started touring homes solo that they had an offer accepted. Without the advantage of having a white mother, I might never have had the benefits of home-owner parents, and I may not have become a homeowner myself.
Leveling The Playing Field For First-Generation Homebuyers
These troubling trends are why we must make homeownership more affordable to first-generation homebuyers. Down payment assistance can help first-time homebuyers who don’t have help from family to afford a home. Rental assistance can help families reduce their costs and help them save up for a down payment. And reforming zoning laws to allow for the construction of more starter homes can help increase the supply of affordable homes in places with high economic opportunity. To undo the inequities of the past, we must prioritize these policies. Or else, homeownership may become a birthright instead of an attainable economic aspiration.