Parental wealth linked to racial gap in millennial homeownership

by Francis Monfort25 Nov 2018

A new Urban Institute analysis has linked parental homeownership and wealth to the persistent racial and ethnic disparities it found in the homeownership rate among millennials.

White young adults ages 18 to 34 had a homeownership rate of 42% between 1999 and 2015, the highest of any racial or ethnic group. Meanwhile, only 18% of black young adults were homeowners.

Urban Institute sought to quantify how parental wealth and homeownership contributes to the 24 percentage-point gap. The study found that this factor explains 12% of the gap in the black-white young adult homeownership rate, which translates to about three percentage points.

The analysis found that parental homeownership alone increases a young adult’s homeownership propensity by seven or eight percentage points. Urban Institute said this reflects the fact that parents who are owners can communicate the advantages of homeownership and often help their adult children navigate house purchase and financing.

The study further revealed that a 10% increase in parental wealth increases a young adult’s likelihood of owning a home by 0.15 to 0.20 percentage points. If two sets of parents are identical in all relevant factors and one set has $260,000 in wealth and the other has $200,000, the child of the wealthier family will have a 5% or 6% greater chance of owning a home than the child of the less wealthy family. Additionally, research shows that adult children of wealthier families get financial support with their down payments from their family.

Given the homeownership and wealth differences among black and white parents, Urban Institute said this affects the racial homeownership gap. The homeownership rate for black parents is 35 percentage points below their white counterparts (49% versus 84%), and their median wealth is 15 times smaller ($14,400 versus $215,000).