Housing market: Inflation hitting millennial, Gen Z renters harder

Rent price hikes are beginning to outpace home price increases as the US housing market stagnates after two years of runaway demand, and that, combined with inflation, is hitting some renters harder than others.

Younger renters including millennials and Generation Z are seeing higher inflation rates than the average American, largely due to soaring rental costs, according to a new Redfin analysis published Thursday.

Impact on young Americans: The analysis found millennials who took on a new rental lease in July saw their overall cost of goods and services increase 11.6% year over year, substantially higher than 8.5% for the US population as a whole. The personal inflation rate for Gen Z renters taking on a new lease came in at 11.3%, nearly as high.

That’s “largely due to soaring rental costs,” the report found, noting asking rents were up 13.5% year over year in July. After skyrocketing drastically in 2021 — a year when home prices also saw record-breaking growth — asking rents are still 25% higher than they were before the pandemic.

“Inflation is hitting young renters hard because not only have prices of everything from food to fuel soared, but so have rental prices,” said Redfin Senior Economist Sheharyar Bokhari.

“Homeowners are forking over more money at the grocery store and the gas pump, but at least the number on their mortgage statement isn’t going up every month. Combine high rental prices with student loan debt and relatively low incomes, and it’s difficult for millennials and Gen Z renters to put money into savings, retirement accounts and down-payment funds to eventually buy a house. They may also have higher interest rates on debt, which cuts further into their potential savings.”

By the numbers: Millennials and Generation Z spend more than one-quarter of their income on housing, the largest chunk of all spending categories, Redfin reported. That’s compared to spending about 13% on food and 7% on fuel.

Redfin’s analysis used the US Bureau of Labor Statistics’ Consumer Price Index, incorporated Redfin’s data on asking-rent prices and weighed each component of inflation, including food, fuel, shelter and other variables to come up with inflation rates for millennials and Generation Z who took on new leases. Members of Generation Z are 18 to 25 years old, and millennials are aged 26 to 41.

“While inflation has cut into the budgets of most Americans, it’s more severe for younger generations,” the report states. “Gen Zers overall have an inflation rate of 9.2% and millennials clock in at 9.6%. That’s lower than the 11%-plus rates specifically for members of those generations who rent, but it’s higher than 8.5% for the general population.”

Inflation also hits interest rates harder overall, especially those who tend to be young. The price of goods and services rose 9.2% year over year in July for all interest rates. Less than half of millennials — 48.5% — own their home, and while Redfin notes official data isn’t available for Generation Z, “the rate is likely significantly lower.”

“That’s compared with homeownership rates near 80% for baby boomers and 70% for Gen Xers,” Redfin wrote. “Older generations tend to have lower personal inflation rates partly because they’re more likely to own their homes and earn money from rising equity rather than spend money on rent.”

Housing cost burdened: After paying for housing and other life necessities, Generation Z is estimated to have a measly 2% of their income left, at a median income of $40,953, according to Redfin’s analysis. That’s down from 7.7% of their income in 2020.

“While that technically leaves just a sliver of their income for discretionary spending, many Gen Z adults — which includes those who are college aged — live with their parents and/or receive financial help from them,” Redfin noted.

Millennials, however, tend to have more wiggle room. The typical millennial with an income of $85,233 tends to have about 26% of their income left over after paying for housing and other necessities. That’s down from 30% in 2020.

Here’s how stark that income difference is between millennials and Generation Z: If the typical Gen Zer saved all their disposable income, they would have only $766 at the end of the year. Millennials would have almost $22,000, Redfin noted.

“At that rate, it would take millennials four years to save enough for a 20% down payment for the median-priced US home ($413,000),” Redfin’s analysis stated. “It would theoretically take Gen Zers more than 100 years to save at that rate, but that figure isn’t realistic because we expect the youngest workers’ incomes to grow as they age.”

But these income figures — compounded by the tough realities of both rising rents and home prices — do have real impacts on younger generations struggling to set themselves up for a more stable and wealthier future.

Almost 40% of recent or current first-time home buyers did not buy a home sooner because of the high cost of rent, according to an August Redfin survey. Nearly 80% of the survey’s respondents to that question were millennials or Generation Z.

“The combination of expensive housing, high inflation and relatively low incomes have forced many young renters to save money in creative ways,” Bokhari said. “Some are living with their parents or roommates longer than they would like, and others are moving to more affordable areas.”

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