The Cost of Giving Up on Home Ownership

Abandoning the idea of owning a home may push people to live more for now and plan less for later—and often in unhealthy ways. The Washington Post reports that's the argument behind a new working paper by economists Seung Hyeong Lee of Northwestern University and Younggeun Yoo of the University of Chicago, who paired a behavioral model with transaction data from more than 500,000 Americans. Their conclusion is blunt: Once renters mentally "give up" on ever buying a home, they save less, spend more on non-essentials, put less effort into work, and are more likely to pursue speculative investments like cryptocurrency. "When housing becomes unattainable, people do not simply stay renters," the researchers wrote. "They often change how they live, work, and plan for the future."

The paper estimates that while 84% of Americans born in 1950 became homeowners at some point, only about 74% of those born in 1990 will do the same. Bankrate estimates that those currently earning the median US income are priced out of 75% of homes, making homeownership a "luxury." Using credit card and income data, Lee and Yoo found that behavior shifts sharply once the resignation about ever owning a home sets in. In areas where home prices rise, higher-income renters who still see a path to ownership tend to cut back on discretionary spending, while renters who appear to have given up increase their credit card spending, even as their long-term savings fall. Those behavioral shifts show up most clearly in investing. The researchers found that renters who feel locked out of the housing market are the most enthusiastic buyers of volatile assets like cryptocurrency.

Lee and Yoo argue the spending shift isn't about financial knowledge as much as it is an overall mindset: Once a major long-term goal feels unattainable, disciplined saving can start to feel pointless while short-term bets become more appealing. Over time, they warn, that dynamic can widen wealth gaps. However, not everyone is convinced the data tells such a clear story. Johns Hopkins sociologist Stefanie DeLuca cautioned against drawing conclusions about what people are doing with their money. "If you're not saving and deferring to buy a house, you're spending it on other kinds of enrichment activities for your kids, supporting folks in your family who are going through a tough time," she said. "We just don't know what this is about, and I'm not sure it's a good or bad thing."