Wealth Gap for Young Households Growing

Last week, we examined the impact the housing crisis is having on U.S. birth rates.

Today, the Pew Research Center published interesting findings concerning the wealth of households by age. Using government data, the authors of the report noted the following conclusions about the generational distribution of wealth and the ongoing crisis in housing:

  • Households headed by adults 65 and older were 42% wealthier in 2009 relative to same-aged households in 1984
  • Households headed by adults 35 and younger were 68% poorer in 2009 relative to same-aged households in 1984

As a result of these changes, the wealth gap between older and younger households has grown substantially. In 1984, the wealth ratio between households 65 and older and households 35 and younger stood at 10-to-1. In 2009, this ratio had grown to 47-to-1.

The authors of report explain the primary cause:

Housing has been the main driver of these divergent wealth trends. Rising home equity has been the linchpin of the higher wealth of older households in 2009 compared with their counterparts in 1984. Declining home equity has been one factor in the lower wealth held by young households in 2009 compared with their counterparts in 1984.

Moreover, the authors make similar claims we have touched upon regarding the long-run demographic impact of the ongoing crisis in housing:

For the young, these long-term changes include delayed entry into the labor market and delays in marriage—two markers of adulthood traditionally linked to income growth and wealth accumulation.

Digging into the findings, the authors emphasize how important housing wealth is to older homeowners. If you exclude housing equity, the net worth of households headed by individuals 65 and older would have been 33% lower in 2009 than their counterparts in 1984, instead of 42% higher as it now stands. 

For young households, there is no such difference. If you ignore housing equity, such households would be 66% poorer than their 1984 counterparts, instead of 68% poorer when one factors in home equity. So the growing gap in wealth between young and old is primarily due to the fact that older households strongly benefited from homeownership, despite recent price declines.

Taking all forms of wealth into consideration, from 2005 to 2009, according to the Pew estimates, household net worth for all households fell 28%. However, the Great Recession has been particularly hard on younger households, who form the majority of first-time homebuyers. Household net worth for those younger than 35 has fallen 55%. For those 35 to 44, net worth has fallen 49%. For those 65 and older, net worth has declined only 6%.

The Pew Research findings concerning wealth and age have a direct impact for understanding housing demand. The Great Recession has clearly taken a toll on household balance sheets, and particularly on the wealth of those age classes that constitute the majority of would-be homebuyers. This economic consequence, along with job market uncertainty, is the reason for pent-up housing demand. And policy proposals that would place homeownership further out-of-reach of today’s emerging households and aspiring members of the middle class will have long-run impacts on both demography and household wealth.



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