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For generations, the promise of upward mobility was simple: Get a good job, save carefully, and buy your way into the middle class. But in many of America’s most expensive housing markets, that ladder is becoming harder to climb, according to new research.
The study, published by the National Bureau of Economic Research (NBER), analyzed US Census Bureau, property, and income tax records for more than 3.4 million families.
It found that housing wealth is more tightly passed from parents to children than earnings are, in a significant reframing of upward mobility in the US.
“This clarifies how economic mobility really works,” says Jake Krimmel, senior economist at Realtor.com®.
“It’s not just about income being passed from one generation to the next, or your parents’ income being a predictor of yours. It’s about the importance of housing wealth as a necessary and sufficient condition for reaching higher rungs on the economic ladder.”
Researchers found that housing capital had an intergenerational persistence score of 0.43, compared with 0.35 for total income and 0.29 for labor earnings.
Put another way, children whose parents ranked ten spots higher in the housing wealth distribution ended up about 4.3 spots higher in their own generation’s housing wealth distribution.
And in some of the country’s most expensive housing markets, that persistence score is even higher—raising questions about whether the housing shortage is also gating opportunities for those without parental wealth behind them.
Why a good job is not always enough
Housing wealth has long been understood as sticky—once a family has it, it tends to stay there—but the study shows just how sticky it’s become.
Children’s own labor income explains only 40% of the connection between parents’ housing wealth and their children’s housing wealth.
Meanwhile, more than half of the connection comes through what researchers call a direct channel.
Children of parents with more housing wealth tend to end up with more housing wealth themselves, even when they earn about the same as their peers.
“It’s a virtuous cycle for those able to get on the property ladder,” says Krimmel. “And once you’re on the ladder, it’s harder to fall off. Housing assets are a key buffer against downward mobility, too.”
Recent research from Realtor.com shows that children raised in homeowner households are 18.4 percentage points more likely to become homeowners by age 35.
In turn, that can translate into a significant wealth advantage—buying your first home by age 30 is associated with a 22.5% (or $119,000) higher net worth by age 50.
“What’s less obvious without this research is that wealthier parents can act as financial buffers for even relatively lower-income adult children,” Krimmel adds.
“That direct wealth transmission from higher- to lower-income people within the same family is key for explaining why parents’ housing wealth is an even stronger predictor of children’s economic status than income alone.”
That support can take many forms. It might mean help with a down payment or a co-signer on a mortgage. It can mean having someone to call when the appraisal comes in low, the inspection turns up a problem, or the monthly payment stretches the budget too far.
For buyers without that support, though, every dollar has to come from wages. Every rent increase makes it harder to save. Every delay risks higher prices, higher mortgage rates, or another year outside the market.
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“This is significant because it shows the limitations of ‘only’ having a good job without accumulating wealth,” Krimmel says.
“It also implies that the Great Wealth Transfer from old to young will only further entrench economic inequality.”
Over the next two decades, an estimated $124 trillion will transfer mainly from the Silent Generation and baby boomers to the younger generations, according to a report by Cerulli Associates, a wealth research and consulting firm.
The NBER research helps explain why that transfer could deepen existing divides. If housing wealth already passes more strongly from parents to children than earnings do, inheritance may reinforce that gap rather than close it.
The study shows that advantage in two ways: whether children own homes at all, and the value of the homes they own once they do.
At the lower end of the parental housing distribution, family housing wealth mostly affects whether children become homeowners in the first place.
But among children born to parents in the top 5% of the housing distribution, more than half end up in the top 20% themselves, and 25% end up in the top 5%.
Big-metro housing markets magnify the advantage
This is a particularly important finding in the current housing market, where home prices have skyrocketed in many major metro areas.
For example, home prices have roughly tripled in the Los Angeles metro since 2000 and more than tripled in Miami, according to home price data from Realtor.com.
Meanwhile, they’re up about 273% in San Diego, 251% in Phoenix, 246% in Seattle, and 201% in New York City.
That’s pushed the price of entry in these markets far beyond what many households can save from income alone. Data from Realtor.com show just how far home prices have pulled away from local incomes.
In 1990, the home-price-to-income ratio was just over three, meaning the typical home cost a little more than three times the typical household’s annual income. Today, that ratio is nearly five.
When available, parental housing wealth can help younger buyers close that gap—an advantage Krimmel says becomes even more powerful when housing supply fails to keep up with demand.
“This is directly connected to the housing shortage and increasingly important in cities with housing supply constraints: When housing is scarce and expensive, that locks out middle and high earners from accumulating housing wealth, often unless they have housing-rich parents to come to the rescue,” Krimmel says.
“This just reinforces generational wealth advantages.”
To his point, the researchers found that places with more flexible housing supply had more upward mobility in housing and less persistence from one generation to the next.
In the most mobile areas, the housing persistence score was 0.32; in the most deeply entrenched areas, it was 0.57.
Where housing is scarce, opportunity gets gated
Those findings connect to a larger debate about whether America’s highest-opportunity places have become closed off to the people who could benefit from them most.
“It’s directly related to gating opportunity,” Krimmel says.
“Creating artificially scarce housing not only hedges against downside asset price risk (the value of the house), but it also acts as insurance for the next generation because that house or the capital gain from it can always be passed down or its underlying wealth transferred.”
It’s the deeper mobility problem hiding in today’s housing market stagnation. Housing is not just an asset, after all—it determines which neighborhoods people can access, which schools children attend, which commutes families endure, and which local networks they can use.
And if those opportunities are tied to place, then restricting housing in those areas also restricts access, according to Krimmel.
“If opportunity is increasingly tied to location, public goods, and social networks, and seats at the opportunity table have been made artificially scarce,” he explains, “then it’s patently obvious how housing supply restrictions serve to curb economic mobility and gatekeep economic opportunity.”
That adds new urgency to the housing-supply fights already playing out in cities and statehouses across the country.
Building more supply is not just a way to improve affordability. It’s also a way to keep housing wealth from becoming a closed loop in which access for one generation depends on whether the last generation already bought in.
English (US)