Michael Conroy/AP

It’s really not the avocado toast: Ballooning college debt is keeping Millennials from buying more houses.

As you’ve probably heard, Millennials just aren’t buying houses like young people used to.

Many iterations of this story have already been told: They’re living with roommates (parental or otherwise), renting rather than buying, and blowing their paychecks on fancy brunches instead of bungalows. Partly to blame is the fact that housing prices have rapidly outpaced incomes since 1980. But there’s another trend that’s magnified the effects of this: An increase in college attendance. That otherwise positive development has triggered mounting student debt, thanks to a spike in tuition costs. In 2015, students who took out student loans graduated with 70 percent more debt than those just 10 years earlier, racking up an average of $34,000 that some are fated to pay off for decades.

According to a new study released by ApartmentList, the college graduates saddled with that debt are saving half as much for down payments as those without it, and taking about four years longer to put a first payment down.

But skipping higher education isn’t the answer: Those who did not complete college at all are even worse off.

College grads with debt need an extra 4.3 years to save a 20 percent down payment on a condo. (ApartmentList)

Owning a home has historically allowed people to build equity, so putting a down payment on a place sooner often means paying off a mortgage earlier and saving for retirement longer. If Millennials are shut out of this cycle, their future economic prospects may look less secure than that of generations before. And with fewer people buying, the demand on rental units is higher, leading to shortages and price spikes.

“For a number of decades now the housing market has kind of been chugging along at some sort of expectation of at what age people will buy homes, and what share of them will buy homes,” said Chris Salviati, a housing economist at ApartmentList and the author of the report. “But what we’re seeing now is potentially a broad structural change in the housing market.”

The mounting cost of a higher education, and the relative importance of securing one, is partly to blame, the report suggests. In 2016, 36.1 percent of Americans ages 25 to 29 had a bachelor’s degree, compared to only 22.5 percent in 1980. Getting a degree is (correctly) seen as a worthy investment—it improves access to higher-skilled jobs and increased future earning potential. But the average cost of an undergraduate education has increased by 160 percent since 1980, while incomes have only increased by 25 percent. According to recent counts, 44 million Americans have now accrued $1.4 trillion in student debt, double what it was in 2009. Based the sample used in the report, 57 percent of Millennials age 22 to 35 with college degrees are currently paying back student loans.

Research released this summer by the New York Fed also found strong correlation between the decline in American homeownership between 2007 and 2015 and high student loan debts: By their estimates, 360,000 fewer Millennials bought homes in 2015 than past data would have predicted. And studies by the National Association of Realtors in 2016 and Pew in 2012 show that students are getting the message: 50 to 75 percent of respondents in each survey said they believed student loan debt was preventing them from buying a home.

Based on data from 2017, Salviati found that college grads without debt (those presumably best situated to save for a down payment) need to save for 7.6 years before they can afford to pay 20 percent of the median condo price, versus college grads with debt, who need to save for almost 12 years. But they are still better off than Millennials with no college degree: For them, it takes 16.7 years. And in pricey, youth-saturated cities like San Diego, San Francisco, and Denver, all three categories of younger buyers will need up to 20 years of saving to begin their journey.

College graduates without debt are also more likely to get an outside boost. According to ApartmentList, college grads without debt have, on average, $10,370 saved for a down payment, and they also expect to receive around $3,500 in additional funds from family and friends. College grads with student loans have saved less than half that ($4,320), and expect only $2,220 in assistance. Those who haven’t attended college at all saved around $2,240, plus $1,130 from outside sources.

College grads without debt expect to receive more money from family and friends than millennials with no degree can save themselves. (ApartmentList)

“Students who take on student debt [already] tend to come from less privileged socioeconomic backgrounds,” notes the report. And “if the only ones who can purchase homes are the ones that already come from wealthy backgrounds where their families can give them assistance,” said Salviati, that only widens the growing wealth gap, which often splits across racial as well as educational lines.

It’s possible that other social changes are at play here, too. College graduates with (and without) debt might avoid buying a home because of shifting priorities away from suburban-style living, delays in starting families, a distrust in the housing market after witnessing the 2008 crash, or simply a desire for increased geographic mobility. But, based on this report, there’s not a lot of evidence to support any of those theories: When each group was asked about future homeownership goals, their responses were almost identical, regardless of status. About 80 percent wanted to buy a home in the future.

To make that happen, the answer isn’t to avoid college entirely. The long-term financial benefits of a degree are not to be discounted. A 2011 study showed that bachelor’s degree holders earn a lifetime average of $2.27 million, versus $1.3 million with a high-school diploma. (Those numbers break down based on major, race, and gender: Women and people of color consistently earn less than their white male counterparts at each level of educational attainment.) As the Fed report suggests, the best way to stimulate both workforce development and Millennial homeownership is clear: “Funding state higher education.”

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