Harvard study highlights Gen Z's struggle with escalating rental costs

Generation Z—currently aged 15 to 29—is growing up, and the eldest are ready to rent their own home. But is there enough housing to go around?

The Center for Housing Studies at Harvard University just released updates on its State of the Nation’s Housing, highlighting new data that has emerged since the original report was published in June.

One noteworthy change is an increasingly high demand for housing, especially among renters, said senior research associate Daniel McCue during a video conference on Friday.

McCue attributed this in part to older individuals in Generation Z—born between 1995 and 2009—leaving their parents’ homes and entering the rental market.

“Gen Z [is] rapidly forming new households,” he said.

Recent estimates suggest that Gen Z makes up around 68 million people in the United States. Yet it remains difficult for them to find affordable places to live.

“For renters, the number with cost burdens has hit an all-time high as rents have escalated,” reads the June report.

Indeed, about 22.4 million renter households spend more than 30% of their income on housing, making them “cost-burdened,” according to the report. The situation is even more dire for 12.1 million of these households, which spend over half of their income on rent.

The median rent for two-bedroom apartments was $1,933 nationally, according to the latest rental report from Realtor.com®.

Despite a tough rental market, the update contains a bit of good news for those looking to buy a home: Namely, the amount of available housing stock has increased since the June report was released, bringing the current supply to around a four-month level. This is a calculation used to determine how long it would take to sell all the homes on the market at the current sales pace.

However, McCue noted that housing stock is still below pre-pandemic levels. This means that while the number of homes for sale is up, it remains tight compared with historical norms, continuing to put pressure on prices and limiting options for potential homebuyers and renters.

One of the most pressing challenges for both renters and buyers is limited availability of new construction. Surprisingly, brand-new houses are often more affordable than pre-existing homes since builders might offer incentives like mortgage rate buy-downs so homebuyers can get a loan at a lower interest rate.

Earlier in the year, new construction was beginning to catch up with demand—but the situation has shifted. The pace of new construction has slowed since June according to McCue. Single-family housing starts have particularly taken a hit and multifamily sectors haven’t fared much better.

This shortage is particularly tough on first-time homebuyers and those seeking affordable housing options as they might find it increasingly difficult to break into the market. The lack of new construction means these buyers face stiffer competition and higher prices with fewer homes available to meet their needs. This will have a trickle-down effect on renters raising their costs too.

All in all, the report underscores urgency in addressing these challenges highlighting broader issues of housing inequality.

“All stakeholders must work together to address affordability crisis and many related urgent housing challenges including inadequate housing safety net record number experiencing homelessness growing threat climate change,” reads report.