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It’s no secret that in many ways, Millennials are worse off economically than previous generations — young people are saddled with unprecedented levels of debt and on top of that have to deal with housing scarcity, stagnant wages and high home prices. In isolation, these factors are bad enough, but taken together, they amount to a serious problem. As older generations age in place, Millennials are finding it more and more difficult to break into homeownership, and a large part of that problem has to do with saving for a down payment.

Unison’s 2019 Home Affordability Report tackles this problem head on, examining how long it takes to save for a home in major U.S. metropolitan areas. The report’s conclusion? The average period of savings has skyrocketed in recent years.

California blues

Nationwide, it takes a median-income individual saving 5% of their income 14 years to save up for a full 20% down payment. Here in California, to save for a 20% down payment on a home, a similar prospective homebuyer will take:

  • 43 years in Los Angeles;
  • 40 years in San Francisco;
  • 31 years in San Diego; and
  • 31 years in San Jose.

This means that in Los Angeles, the most populous metro in the state, a 22-year-old fresh out of college won’t be able to qualify with a 20% down payment on their first home until they’re well into their sixties — likely once they’ve already retired. But while LA is on the high end of the spectrum, owing to the exorbitant cost of living, prospective homebuyers won’t fare much better in other major California metro areas.

Editor’s note — The Unison report cited in this piece measures its calculations based on median home prices and incomes. While discussing home prices in terms of medians typically produces vague or misleading results when tracking specific trends in the housing market, it is useful to examine broad patterns.

Of course, many first-time homebuyers don’t pay the entirety of a 20% down payment from their savings — some are fortunate enough to get assistance from family members. Some homebuyers also choose low down payment options — a risky choice, as they come with higher mortgage payments and lower a new buyer’s equity in their home. Unison, the firm behind the 2019 affordability report, also offers a solution wherein they will co-invest with qualified buyers to help out with a down payment. But this, too, leaves a homeowner equity-poor.

In addition to the hardship of saving up for an initial down payment, homebuyers also need an income that covers their mortgage payments. Unison’s report notes that, on average, monthly mortgage payments have increased at a rate far exceeding that of each area’s wages.

The home zone

All this, of course, comes down to the fact that home prices are too high for new homebuyers to afford on stagnant wages. High home prices are a result of a number of factors, but the most relevant in California is the state’s ongoing housing shortage. Millennials who want to enter the homebuying market have little inventory to choose from, and little purchasing power to compete with.

However, there is a solution to the problem of low inventory: amend California’s overly restrictive zoning policies. Not only does strict zoning result in construction slowdowns, it also causes home prices to rise — all while incomes remain flat.

Efforts to solve housing shortages by changing zoning requirements are met with vehement critique by not-in-my-backyard (NIMBY) advocates, who seek to limit the density and height of hypothetical new housing. Ostensibly, the goal of these crusaders is to ensure any new construction is in keeping with their desired aesthetic. The result is to keep low-income families — who are more likely to live in the kind of affordable, high-density housing for which looser zoning restrictions will provide — out of their neighborhoods.

But housing inventory needs to grow, both to accommodate the state’s burgeoning population and to keep home prices affordable for renters looking to break into homeownership. Additionally, without first-time homebuyers who comprise the foundation of a solid housing market, California real estate agents will do less business. When prospective homebuyers can’t buy, they drop out of the market, leading to fewer home sales.

The good news is that in the last several years the California legislature has churned out affordable housing bills that seek to address the ongoing housing crisis. While NIMBYs continue to provide a vocal blockade to some of these policies, a dearth of affordable housing options may instead lead to an uptick in homes Millennials don’t need to wait 30+ years to buy.