Zillennials Can't Afford to Buy Homes. So What?

When Los Angeles–based author and entrepreneur Ramit Sethi eventually buys a home, he predicts it will be the worst financial decision he ever makes. "I could buy a house now, but I ran the numbers and I've made more money renting than I would have owning over 20 years," he tells PS.

Haley Sacks, another entrepreneur and financial influencer in New York City, feels similarly. "I'm a millionaire and I rent," she says.

Both experts have taken what they would have spent each month on mortgage payments and instead invested it into the stock market, which has done much more for their portfolios than the equity on properties in their respective cities could. But if these financial experts are content to rent, why do so many Americans — 78 percent of them, according to Bankrate's most recent Home Affordability Survey — still believe owning a home is an essential part of the American Dream and the best way to build wealth?

"There's an entire generation of people who feel less than, who have been told they cannot be successful with no realistic path to buying a house," Sethi says.

If it feels like every discussion about millennials or Gen Z fixates on the barriers they face to home ownership, you may be right. Since those groups first crossed into adulthood, there's been a constant hum of news about how the burden of student loans and record-high interest rates put these zillennials way behind where their parents and grandparents were during similar life stages, with many unable to afford the big purchases that were once the default expectation for adults.

So yes, we get it: Zillennials can't afford to buy homes. But is that actually such a bad thing?

Plenty modern financial experts say no. But renting stigma has left many in the market blindly (and unsuccessfully) striving for home ownership without ever running the numbers — numbers that might tell them renting is actually a smarter use of their money right now. A lot of times when Sethi advises this, people don't want to hear it. "It's like I'm saying the sky is green."

In the US, real estate is "our favorite religion," he says, and its evangelists have worked hard to cultivate a system that prioritizes home owners and shames everyone else, whether they pay rent or are homeless, or anything in between. But thanks to some increasingly popular new approaches to money and money psychology, attitudes around housing are beginning to change.

Haley Sacks is a zillennial finance expert and the financial influencer behind @MrsDowJones on Instagram and TikTok.

Ramit Sethi is the author of "I Will Teach You How to Be Rich" and hosts a podcast of the same name. Sethi also hosts Netflix's "How to Get Rich."

Jack Howard is the head of money wellness at Ally Bank and the face of money psychology program Money Roots.

In the background of the American Dream — behind the white picket fence and green lawn — there's the implied ranch-style home, sitting pretty and accumulating equity for its owners. To Sethi and other cynics, this is the product of propaganda from the National Association of Realtors, which he says exists to ply a steady stream of "middle men putting their hands out" (think: realtors, brokers, loan agents) with lots of money. And while the creation of the American Dream as we know it is somewhat more complicated, it is worth noting that the NAR is regularly listed in the top two lobbying spenders nationwide, and spent a record $84 million in 2020, according to Open Secrets.

Regardless of its origins, ideas about the American Dream — however outdated — are still powerful motivators, even in an era where big purchases feel out of reach for younger demographics, or may not even align with their long-term life goals.

To overcome the internalized shame around renting, it's important to first grasp your personal financial values. Jack Howard, head of money wellness at Ally Bank, runs a new money psychology program that helps clients unpack their emotional triggers and make spending plans that align with their desires, not just the status quo.

"Are you buying that house because that's the American Dream? Because you didn't have a home growing up and for you that looks like success? We need to review those beliefs," Howard says. She adds that as much as it's a financial decision, "buying a home is an emotional decision, too," and not one that's right for everyone. "Does buying a home fit your life, or just your portfolio?"

This is a radically different approach to finances than what was available to people of previous generations, who mostly felt obligated to follow the path laid out for them — and typically had fewer impediments to home ownership.

Not only are zillennials facing mountains of debt, but there's also a nationwide housing shortage characterized specifically by a lack of starter homes, which housing policy expert Alex Horowitz recently told NPR is making it "difficult for first time homebuyers to crack the market."

"The median income can't buy a house in the top 50 cities," Sethi says. "It's not that you're irresponsible and buying too much avocado toast."

A lot of people just accept that home ownership is an essential pillar of adulthood, along with marriage and kids. That message is so pervasive that many forget to do the simplest thing: run the numbers.

Sacks, who rents an apartment in New York City, was once one of those people: "Like many young people, I fell for this idea of, 'Am I burning my money on rent?' I felt shame, I was embarrassed, I felt like I was missing out, but then I ran the numbers and I was like damn, [owning] is not a great investment."

She used her own price-to-rent ratio calculator tool to determine that with all the hidden costs of home ownership like insurance, taxes, and repairs — which can be as much as half the mortgage cost itself — "the return just doesn't compare" to her other investments, including her low-cost index fund.

"When boomers were buying a house, they didn't have all these options for entry [into the stock market], they didn't have online brokerages on their phones like we do today," Sacks explains. "We're in the golden age for investing. We're so informed, and there's so many different resources now."

Because home ownership was one of the only paths to wealth for their parents' and grandparents' generations, many young people today assume it's their only option, too. But far fewer people are now beholden to the housing market for wealth-building than previous generations.

"Anybody has access to the greatest wealth creation engine in the world, the stock market," Sethi says. The $70,000 that you put toward owning a home could potentially do a lot more for your savings when invested elsewhere, he argues. Either way, it's smart to do a few basic calculations before making any decisions, he says. "You should run the numbers on the biggest purchase of your life."

Sacks and Sethi both love renting, primarily for the flexibility it allows them, and because they're not on the hook for repairs when maintenance issues inevitably arise.

A misconception about renting, too, is that the price only goes up. It's rare, but on occasion, Sethi says, rents can actually go down. "You have to understand the rental market and negotiate," he says. In smaller cities where development is climbing and new housing is flooding the market, renters have more leeway to request rent decreases from their landlords. It doesn't always work, but it's worth investigating. "Renters give up their power frequently because we think landlords have all the power in the world," he says.

Sacks also points to celebrities, like Ed Sheeran, who choose to rent despite obviously being able to afford the deed. "You see a lot of very rich people renting because maybe they're not going to be there for very long, or they want to put their money somewhere else," she says. Sacks discovered that Sheeran's $36,000-a-month Brooklyn rental actually only increased in value three percent over the last seven years. Add maintenance costs on top of that and purchasing that penthouse no longer seems like such a great investment.

For non-celebs, too, renting is just generally simpler, she says, because you don't have to worry about property values, mortgages, or coming up with a down payment. That lump sum up front presents a challenge for the most debt-laden zillennials. "For the younger generation, it's hard to save for the down payment when you also have student loan debt," Howard says. "It's just not affordable."

Because real estate may not be the most lucrative investment for people today, the decision to buy a house really boils down to lifestyle preferences. Howard bought her home in Detroit because it's her hometown and "my roots are here," she says. Both Sacks and Sethi plan to purchase homes someday when they crave some stability, like when they're ready to start families. "When you have kids there's a desire to put down roots with them. So it'll be something I revisit," Sacks says.

Before he buys a house, Sethi has a set of five criteria that he plans to implement: He must be willing to stay there for at least 10 years, total monthly housing costs must be lower than 28 percent of his income, he needs to have saved a 20 percent down payment, he needs to be OK if the price of the property goes down over time, and lastly, he has to be excited about the place.

"Young people talk about it so depressed, like 'Oh god, I have to buy a house,'" he says. But actually? You don't.

Emma Glassman-Hughes is the associate editor at PS Balance. Before joining PS, her freelance and staff reporting roles spanned the lifestyle spectrum; she covered arts and culture for The Boston Globe, sex and relationships for Cosmopolitan, travel for Here Magazine, and food, climate, and agriculture for Ambrook Research.