Intergenerational Homeownership: The Impact of Parental Homeownership and Wealth on Young Adults’ Tenure Choices

R E S E A R C H R E P O R T Intergenerational Homeownership The Impact of Parental Homeownership and Wealth on Young Adults’ Tenure Choices Jung Hyun Choi Jun Zhu Laurie Goodman October 2018 H O U S I N G F I N A N C E P O L IC Y C E N T E R A B O U T T H E U R B A N I N S TI T U T E The nonprofit Urban Institute is a leading research organization dedicated to developing evidence-based insights that improve people’s lives and strengthen communities. For 50 years, Urban has been the trusted source for rigorous analysis of complex social and economic issues; strategic advice to policymakers, philanthropists, and practitioners; and new, promising ideas that expand opportunities for all. Our work inspires effective decisions that advance fairness and enhance the well-being of people and places. Copyright © October 2018. Urban Institute. Permission is granted for reproduction of this file, with attribution to the Urban Institute. Cover image by Tim Meko. Contents Acknowledgments iv Executive Summary v Intergenerational Homeownership 1 Introduction 1 Decline and Disparities in Young Adults’ Homeownership 2 Racial and Ethnic Disparities in Parental Wealth and Parental Homeownership 5 Impact of Parental Homeownership and Wealth on Young Adult’s Homeownership 7 Parents’ Homeownership Stability and Wealth Threshold: Black versus White 10 Parental Influence across Location and Time 14 Conclusion and Policy Recommendations 16 Appendix 20 Notes 23 References 24 About the Authors 25 Statement of Independence 26 IV A C K N O W L E D G M E N T S Acknowledgments The Housing Finance Policy Center (HFPC) was launched with generous support at the leadership level from the Citi Foundation and John D. and Catherine T. MacArthur Foundation. Additional support was provided by The Ford Foundation and The Open Society Foundations. Ongoing support for HFPC is also provided by the Housing Finance Innovation Forum, a group of organizations and individuals that support high-quality independent research that informs evidence-based policy development. Funds raised through the Forum provide flexible resources, allowing HFPC to anticipate and respond to emerging policy issues with timely analysis. This funding supports HFPC’s research, outreach and engagement, and general operating activities. This report was funded by these combined sources. We are grateful to them and to all our funders, who make it possible for Urban to advance its mission. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Funders do not determine research findings or the insights and recommendations of Urban experts. Further information on the Urban Institute’s funding principles is available at urban.org/fundingprinciples. E X E C U T I V E S U M M A R Y V Executive Summary This study examines how parents’ homeownership and wealth influence young adults’ (ages 18 to 34) tenure choices. Using Panel Study of Income Dynamics data between 1999 and 2015, we show that the children of homeowners are 7 to 8 percentage points more likely to be homeowners than children of renters, all else equal. Additionally, a 10 percent increase in parental wealth increases young adults’ likelihood of owning a home by 0.15 to 0.20 percentage points. The difference in parental homeownership and wealth explains 12 to 13 percent of the homeownership gap between black and white young adults. Our study also shows that the stability of parents’ homeownership and the amount of wealth they possess also affect their child’s likelihood of owning a home. The impact of parental homeownership and wealth on young adults’ homeownership also varies across time and location. The parental homeownership effect was stronger during the economic boom, and the wealth effect was stronger during the bust, when credit tightened. Both parental wealth and homeownership have a stronger relationship with young adults’ likelihood of homeowning in low-cost cities, where housing is more affordable. Intergenerational Homeownership Introduction Young adults are delaying the transition to homeownership. Our recent report on millennial homeownership finds that millennials ages 18 and 34 are 7 to 8 percentage points less likely to be homeowners than Gen Xers and baby boomers at the same age (Choi et al. 2018). We also find persistent racial and ethnic disparities in homeownership. As the US population becomes more racially and ethnically diverse, it is important to ask how the significant decline and ongoing gaps in homeownership will affect future generations. Historically, homeownership has been an important wealth-building asset. Wealth accumulation is financially beneficial not only to the homeowners themselves but can also be transferred to their children. This intergenerational homeownership transfer is likely to reinforce and expand the homeownership and wealth gaps across race and ethnicity. This stud