Millennials and Generation Z renters have another hurdle preventing them from homeownership: inflation.
While these two generations have long lagged in becoming homeowners compared to previous generations, obstacles such as student loan debt and recessions have delayed their goal of becoming homeowners. Today, renters are facing increasing inflation, which is causing them to put off homeownership even more. Wage increases for these generations is also trailing behind inflation rates.
According to Redfin, millennials who signed a new lease for a rental property saw their overall costs of good and services rise 11.6% year over year, while Generation Z renters saw theirs rise 11.3%, both noticeably higher than the average for the U.S. consumer of 8.5%. Rental prices have increased 13.5% year over year, making rent prices about 25% pricier than they were pre-pandemic. The report found that millennials and Generation Z spend more than 25% of their income on housing. Income has increased 9.7% between 2020 and 2022, while expenses have grown around 17% in the same time period. For the average Generation Z member, they have 1.9% of their income left after housing, transportation and other necessities. This has dropped nearly 6% since 2020. The average millennial has about one-quarter of their income left after housing costs and other necessities, down 4% from 2020.
Not surprisingly, incurring inflation and rising costs, millennial and Gen Z renters are struggling to save for a down payment. Nearly 40% of first-time homebuyers said their high cost of rent prevented them from buying a house sooner.
In Philadelphia, the inflation rate for Generation Zers signing a new lease is 10.8%, while it is 10.7% for millennials, compared to an overall inflation rate of 8.8% in the city.