The Housing Market Has Been Shaped by Big Public Investments. It’s Time for Another.

As Election Day approaches, much of the electorate—and overwhelmingly, young voters—have indicated that housing policy will majorly influence their vote. And for good reason: the housing market today is the least affordable it’s been in decades. Policymakers today have the power to improve the housing market for young people; to incentivize housing supply increases, particularly for affordable housing; and to open up more equitable paths to wealth building, as the traditional path of homeownership has become less feasible for many.

Home prices are higher relative to income than they have been. Housing supply (particularly affordable supply) is seriously lacking for owner- and renter-occupied units, and despite recent cuts, interest rates remain near their pandemic-era highs. At age 30, 42 percent of millennials are homeowners, but 51 percent of baby boomers and about 60 percent of those in the Silent Generation were homeowners by that age. About 45 percent of people ages 18 to 29 are living at home with their parents—the highest the figure has been since the 1940s.

As Gen Z and millennial households near their homebuying years, they are still waiting for policies and investments like the ones that housed and uplifted many of their parents and grandparents. A growing share of young people have given up the prospect of homeownership entirely—not because they do not wish to be homeowners but because they can’t afford it.

Among young people who do plan to buy homes, more than one-third plan to leverage financial support from family or friends to help fund down payments. But not everyone has access to the generational wealth now needed to be competitive in today’s homebuying market, which has created a growing gap between the rich and the poor among younger generations. Younger generations are also more racially and ethnically diverse than past generations and have inherited the long-standing racial homeownership gap, which was created and bolstered by historical policy and practice.

Without appropriate interventions, the overall homeownership rate of Gen Zers and millennials is likely to remain below that of their parents and grandparents for at least the next several decades. Delayed homebuying could have consequences too. Urban Institute research finds that households who buy their first home before age 35 gain substantially more housing wealth by age 60 than those who buy later. The generational disparities in homeownership and housing wealth could ripple for decades to come.

Public policy has always shaped the housing market

Many of the institutions and structures we see in today’s housing market are directly tied to government investments and public policy decisions from previous generations.

In the 1930s, then-president Roosevelt took a multipronged policy and programmatic approach to respond to the Great Depression. Many of his New Deal programs shaped the way housing—and the credit and capital required to access homeownership—was made available and administered in the United States:

• The Federal Home Loan Bank Act of 1932 encouraged homeownership following the market crash by providing low-cost funds to member banks to use for mortgages and established the Federal Home Loan Bank System, which still operates today.
• The Home Owners’ Loan Act of 1933 provided emergency relief to homeowners in mortgage debt because of the Stock Market Crash of 1929 and created the Home Owners’ Loan Corporation to prevent foreclosures.
• The 1934 National Housing Act improved lending for home construction, purchase, and improvements. The act created the Federal Housing Administration (FHA) to federally back repayments to mortgage lenders that submitted to federal standards of risk. Today, the 30-year fixed-rate mortgage loan that FHA popularized dominates the purchase market
• A 1938 amendment to the Fair Housing Act created the Federal National Mortgage Association, also known as Fannie Mae, to purchase FHA-insured loans from lenders and improve liquidity in the mortgage market. Freddie Mac was established in 1970 to do the same.
• The 1937 Housing Act established the country’s first public housing system.
• In 1944, the Servicemen’s Readjustment Act, also known as the GI Bill, expanded homeownership opportunities by offering low-cost mortgages to veterans. By 1955, the U.S. Department of Veterans Affairs had made more than 4 million home loans, contributing to massive growth in the homeowner class.

Though these historic investments expanded housing opportunities for many, they explicitly excluded many people of color and racially segregated people and communities—like Black veterans, who were left out of GI Bill benefits. Policies and practices like redlining, racial covenants, single-family zoning, and a loan underwriting system steeped in structural racism cemented inequities in housing and wealth that persist today. The Black homeownership rate sits nearly 30 percentage points below that of white households, and the Hispanic homeownership rate is 22 percentage points below white households’. These gaps contribute to significant racial wealth disparities, with white families holding about six times the average wealth of Black and Hispanic families. As housing wealth and homeownership transfer from generation to generation, past racial homeownership disparities, a byproduct of past policies and systems, have passed on to the current young generation: our research finds Black young adults with a college degree have lower homeownership rates compared with a white young adult who dropped out of high school.

Research suggests housing supply and inequities should be addressed in the next wave of public investments

Historically, public policy has made housing accessible and affordable for many—though certainly not for all. But today’s scarcity of affordable housing has made many young people feel disillusioned with politics and policy.

To better understand where policymakers should focus to meet the housing needs of young adults, we interviewed millennial and Gen Z Urban Institute staffers, who were informed both by their work on housing and their personal experience, on the biggest issues in the housing market.

Every interviewee highlighted the housing supply shortage. Despite growing demand, housing production relative to population has stalled since the Great Recession, forcing many young adults to live with their parents for longer or double up with roommates. There is both an overall shortage of homes and a severe mismatch between available stock and household incomes. “I’ve seen a lot of the sort of ‘free-market economics’ leave it up to the builders that are there to make the supply that we need. It isn’t really working,” said Katie Visalli, an Urban Institute research analyst. “Our public policy needs to be less afraid of spending when it comes to fixing the affordable housing crisis,” Visalli continued, critiquing how in the current housing market, the process of filtering is not working, as new supply is slow to come on the market, and existing homeowners, locked into their lower interest rates from previous years, are not moving. Downsizing to a smaller home has also been slower among seniors, creating even more of a filtering backlog.

Young experts also pointed out the growing gap between the “haves and the have-nots” of homeownership had created not only financial inequities but also a power imbalance between owners and renters rooted in historical policies. As homeownership passes from generation to generation, the inequities are likely to continue, if not worsen, among the younger generations without appropriate policy interventions.

“Public policy should help level the playing field, making it easier for everyone to achieve the milestone of homeownership,” said Erika Zelaya, Housing Matters’ digital communications specialist, who spoke to how privilege and disadvantage compound in the housing market, propping up some families and excluding others. Big public policies on the table today could more equitably reshape the housing market. “Homeowners are a very, very, very well-defined and organized political group,” said Donovan Harvey, former Urban Institute research associate, speaking from his experience working on his local zoning advisory commission. “Unfortunately, renters, even though they outnumber homeowners in [many] cities, are not nearly as coherent [a political group],” said Harvey, contrasting who makes policy demands and shapes the discourse. Harvey told us that in many ways, homeowners shape the policy narrative—and even the questions that researchers are able to ask and investigate—because of the wealth they hold. “This concentration of power might be leading to a lack of imaginative solutions in public policy,” he said.

Those we spoke with knew from their work with federal, state, and local policy ecosystems that systemic change through policy is possible. Despite this, they remained unsure if policymakers are really listening to those who need to feel policy’s impact the most, a fear and frustration echoed by young people globally.

It's time for young people’s public investment in the housing market

The issues young people are facing today are undoubtedly large. The country is short millions of homes, particularly at the affordable end of the market. High home prices and mortgage rates have led the typical homebuyer to put down more up front, limiting the ability for households without generational wealth to be competitive in today’s market and widening the gap between those who own a home and those who don’t.

But it doesn’t have to be all bad news: renewed investment in the housing market and a rebalancing of power dynamics is possible. Public policy created many of the problems and inequities young people see today, but it could also solve those problems, if policymakers are innovative. To ensure young people’s financial security—and the economic growth of the country—policymakers will need to make big public investments in the housing market and consider new ways to open access to wealth-building beyond homeownership.

Increasing the affordable housing supply, mentioned by all our interviewees, is an important first step to help renters and homeowners have stability, and there are policy opportunities on the table today.

• The Neighborhood Homes Investment Act, a bipartisan bill reintroduced in March 2023, would establish a federal tax credit, similar to the low-income housing tax credit (LITHC) for multifamily rental housing, for new construction and rehabilitation of affordable owner-occupied homes. Notably, the tax credits could only be claimed for homes built or rehabilitated in low-income communities and only once the homes are sold to and occupied by lower- or middle-income families, who are disproportionately likely to be families of color. And given the history of disinvestment and urban renewal in neighborhoods of color, a significant share of these tax credits would go to neighborhoods of color.
• The Affordable Homes Credit Improvement Act, reintroduced in May 2023, is focused on reforming and improving the LITHC, the largest federal affordable housing program in the country. Although the LITHC is the primary source of financing for affordable rental housing construction and preservation, it has historically left out extremely low–income tenants and formerly homeless households, those perhaps the most in need of federal assistance but with the least political power and influence. The bill would (PDF) increase the amount of tax credit allowed to each state, increase the number of projects eligible to receive funding, and improve the program’s ability to serve the most vulnerable people and communities.
• Policymakers could also provide incentives for state and local governments to reform their zoning and land-use regulations, one of the greatest barriers to affordable housing construction.

But when it comes to reducing long-standing, and worsening, inequities in wealth, economic security, and power, policymakers will have to look beyond homeownership as the only wealth-building tool. 

The United States has long relied on housing policy as wealth policy, but because housing policy was never racially equitable in our country’s history, this reliance has exacerbated the racial wealth gap. Future generations, who are more racially diverse than those who came before them, would benefit from public investments that expand how they can build financial security and wealth. Policymakers can consider guaranteed income programs to improve housing stability, reduce discrimination, and provide choice among renters. And they can consider baby bonds targeted to families with low wealth to provide opportunities for those without family wealth to access the American dream of upward mobility. To effectively address decades of discrimination, which have contributed to massive and long-standing racial wealth gaps, propping up some on the backs of others, policymakers can consider reparative investments and wealth taxes, which could equitably reshape the economy.

In the past few years, the federal government has made unprecedented public investments. The Coronavirus Aid, Relief, and Economic Security Act; the Response and Relief Act; and the Families First Coronavirus Response Act funded nearly $6 trillion in direct relief to people and businesses struggling during the COVID-19 pandemic, and in 2022, the Inflation Reduction Act was signed into law, authorizing one of the biggest investments ever made in infrastructure and climate in the country’s history.

Policymakers have proven they can take big swings. They have many tools to solve big issues in the housing market and create a more equitable, balanced society, and they could earn the attention and support of young voters along the way.