The Harvard Joint Center for Housing Studies completed a comprehensive research paper by Irene Lew in November 2015, concluding that increasing student loan debt over the last 20 years is having wide sweeping consequences for home ownership rates across the country.
As other types of non-housing debt fell, student loan debt more than tripled in the last ten years from $380 billion to $1.1 trillion and continues to rise since the Great Recession. With an average of more than 14% of monthly income consumed by student debt, the rate climbed from 5% in 2007 to 19% in 2013. Specifically for the state of Nevada, class of 2013 graduates from the University of Nevada, Reno carried an average debt of $22,113 upon graduation and University of Nevada, Las Vegas grads finished school with an average debt load of $21,126.
Home purchase rates are clearly lower among young renters with a higher ratio of debt but surprisingly according to the study home purchasing decisions are also effected by smaller payment higher income renters as well. The savings rate is affected in two ways. First is the direct reduction in the household income and the second is how loan payments effect investment portfolio allocation. The options are to pay down student debt, save for retirement or appropriate savings towards a future down payment on a home. The conventional decision would be to pay down debt but that directly affects the accumulation of savings towards a down payment and decreased loan qualification completing the downward spiral of lower home ownership.
First-time home buyers traditionally are in households who are in their 20s and 30s, with the increasing debt across all races and socio-economic backgrounds, these typical buyers just aren’t stimulating home purchases like they have in the past. Home ownership rates for 20-39 year olds with “low burden” student loan debt in 1992 was 45.6% and increased to 56.8% in 2013. Households with “high burden” student debt rates dropped from 19.8% to 11.1% over the same time period. Simply stated, the higher student debt the lower your probability of owning a home.
Public policy makers need to be made aware of the current crisis and in turn work with higher education institutions to find immediate solutions to stimulate economic growth and home ownership for its system wide ramifications. Young person unemployment rates, the recession, fewer full time positions for less pay, tightened credit requirements, lower starting salaries only exacerbate the dilemma of student loan debt versus higher education and directly affect housing markets in every city across the country.