Across Generations: Income, Home Ownership and Where People Live

Tim Lloyd: Welcome to the Timely Topics podcast from the Saint Louis Fed. I'm your host, Tim Lloyd, and with me today is Victoria Gregory, an economist at the Federal Reserve Bank of Saint Louis. Victoria, thanks for joining the show.

Victoria Gregory: Thanks so much for having me on.

Lloyd: You spent a lot of time digging into data on economic trends across generations, more specifically, income and housing. I'm curious what prompted you to study this topic?

Gregory: On the housing side, I don't typically study housing, but there's been a lot of discussion lately. You're hearing a lot about housing affordability. And housing is particularly important for the middle class because it's one of the main ways that many households here in the U.S. build their wealth. I'm also kind of broadly interested in how the economic environment has changed over the past several decades.

I thought it would be interesting to look at the experiences of different birth cohorts, from Baby Boomers, Gen X, Millennials down to Gen Z. And given that I'm usually more of a labor economist, I wanted to see if I could link the labor market experiences of these different cohorts with their homeownership patterns.

Lloyd: What larger narrative that emerges as you look through all this data?

Gregory: First, I compared labor income for people who are working full time, people from different cohorts at each age using data from the American Community Survey. I wanted to think about, how does the life cycle profile of income vary depending on your birth cohort? And I divided the sample up into college and non-college educated workers. And I first found that for college educated workers, there were seemingly very small or no income gap across the generations. It seemed like, in other words, baby boomers were earning similar amounts to millennials and Gen X when they were around the same ages. But this didn't hold true for non-college graduates. And in this case, each subsequent generation earned less at each point in the life cycle.

Then I asked whether these income differences I found between the two education groups translated over to homeownership rates. And here I found that newer generations were less likely to own homes at similar ages compared to older generations, and that was true regardless of whether or not one had a college degree. So, it seemed like, interestingly, even though college workers were earning similar amounts to previous generations, they were still less likely to own homes.

Lloyd: Yeah, I want to dig into that a little bit more. What do you think is behind that? If income is relatively stable for folks with college degrees across generations, but homeownership is not. What could be driving that?

Gregory: I thought that finding was really interesting because it says that labor income is not the only factor behind the homeownership gap across generations. Something else has to be going on and probably stemming from, could be stemming from, differences between workers with and without college degrees. So, the next place I wanted to look was households’ location choices over the generations. Where people tended to be living in more urban versus rural areas. And how does that change over the life cycle? And I was thinking, for example, if maybe jobs for the college educated became more likely to be located in cities and cities have gotten more expensive, then that could be one driver of the of the gaps.

Lloyd: Let’s unpack the location question a little bit more, and before we do that, how did you define location?

Gregory: I wanted a measure of urban versus rural location, so, I drew on this out of the box classification that the Office of Management and Budget (OMB) has used before. In the data, I know what counties each respondent lives in and this classification maps counties into a few different types. For counties located in large metro areas, which they defined as more than 1 million people, it divides the city into these central areas, which refer to the dense city centers and what they call the fringe areas, which refer to the surrounding suburbs. And then for counties located in smaller metro areas it divides the metro areas into medium, small and micro, just based on the population.

Lloyd: Given all of that, when you look at the data where the people live in their 20s and 30s, what trends emerged across generations?

Gregory: For each cohort, starting from the Silent Generation to Generation Z, I looked at the types of metros they tended to live in in their 20s. And then again, when they got into their 30s. And starting with the 20s, the major pattern that seemed to come out from this was that the earlier generations were more likely to live in central parts of the cities.

So, for example, for baby boomers, around half of them lived in large central metros, compared to, around 40% of Gen Zers in their 20s. Instead, many members of these newer generation seem to be starting off in their lives and careers in smaller metro areas. And I think these early in life location patterns are interesting because location choice here is generally driven by job opportunities and affordability, concerns. If big cities have gotten more expensive over time, then maybe young professionals have become less likely to move there, which could explain this.

And then I looked at how these patterns change when people get into their 30s. And at this stage, it seemed like baby boomers, Gen X and millennials all looked pretty similar. So, now they all seem to converge at around 45%. Living in the large central parts of cities, a bit over 20% living in the suburbs, and then, the rest living in smaller areas. It seemed like so far that by their 30s the cohort tended to be living in similar places. It's just still that these later cohorts were less likely to own to own their homes there.

Lloyd: If location across these different cohorts is relatively stable, but homeownership is not, what explains that gap?

Gregory: The next thing I wanted to look at was the composition of wealth at age 30 for boomers, Gen X and millennials. And wealth I was taken from the Survey of Consumer Finances, it’s just the value of assets minus debts. And I found that at age 30, it turns out median wealth was not super different across the generations. But when you dive into that, it seemed like Gen X and Millennials in particular held much more debt than their than their predecessors. And debt holdings were also particularly driven by student loans. So, later generations were more likely to hold these loans at all. And among those that did, the debt-to-income ratio was higher for later generations. So, that could be part of the story as to why the homeownership gap persists even among the college educated.

I also looked at marriage and fertility patterns across the generations, and I found that more recent cohorts were getting married later and were less likely to have kids living in their household at comparable ages. Both of these trends are also probably linked to home buying behavior.

Lloyd: I want to close out by looking ahead at the oldest members of Gen Z. They're only in their early 20s at this point, so we don't have enough data to really draw any findings. But I am curious, given how much the world has changed over the last few years, what factors do you think could influence their choices about where they live and whether they're able to own a home?

Gregory: As you said, I wasn't able to do a lot of the analysis that I did for Gen Z because they're not yet in their 30s. But I think they're interesting because a lot of them went to school and started off their careers during the pandemic. For one, it's been well documented that graduating college into a downturn impacts your future outcomes negatively. And it's also not yet clear about how remote learning and remote work might impact their skill development. And on a note of remote work, it's becoming more common lately and it's breaking the link between where you live and where you work. So, for Gen Z, it seems like they're going to be the first cohort to have these more flexible living and working arrangements available to them throughout their entire life. So, I think it'll be interesting to see how that plays out for them.

Lloyd: This has been really fascinating. Thank you, Victoria, for doing the show. And, if you're interested in Victoria's work, you can find it at stlouisfed.org. And you can subscribe to Timely Topics on Spotify, Apple Podcasts or anywhere you get your podcasts.