Guest Feature

Will My Daughter Own a Home?

By Matt Quinn, Vice President, Asset Manager

Matt Quinn

My wife and I just had our first child. A daughter. She’s precious. And while I used to be thinking about surf trips, now I’m thinking about elementary school (our neighborhood public elementary school is free, no brainer!) and college (I hear they pay you to go to trade school, easy call!).

I’ve also been thinking about homeownership and the likelihood that in 20 or 30 years she’ll be able to buy a home in San Diego. Going strictly by the data for an “average” person –a household making the average income for a region compared with the average mortgage for a single-family home – the answer is likely no. The median home price in San Diego is $925,000 and the average household income is $113,000, so the math doesn’t work. Okay, we live in an expensive city so maybe she can buy in a nearby area and occasionally drive to see her old man? The median price in Riverside is $640,000 and the average income is $90,000, another no. Okay, maybe Orange County? Maybe Irvine? No. No. Geez. Maybe across the border in Baja California, Mexico? Wait, those numbers might work! She could own in Baja! Never mind – you must be Mexican to own real estate in Mexico. Scratch that.

U.S. Homeownership: Yesterday, Today and Tomorrow

The U.S homeownership rate grew significantly over the past century before beginning to decline in 2006. In 1900, the rate was 47% and grew somewhat steadily through the post-WWII period (supported by the G.I. Bill) until it peaked in 2006 at 69%. Homeownership has declined during the past 15 years to approximately 65% today. According to a recent study by the Urban Institute, homeownership is expected to continue to fall to 62% by 2040. And in the West, the homeownership rate, lower because of prices well above the national average, will likely be even lower in the future. Through 2040, the number of new renters is expected to be twice that of new homeowners.

Contributing Factors

So how did we get here? The homeownership conundrum starts with a drastic supply problem and is exacerbated by demographic trends – Gen-X, millennials and Gen-Z have been delaying marriage and family formation and the rate of each is well below rates for Baby Boomers. Younger people today also value mobility and can increasingly work from home, allowing them to live anywhere. So, they’re more inclined to rent than to buy.

Economics play a big role too. In many cities in the west, it costs 30-50% more to own than to rent. Sure, there are tax benefits to owning but it’s generally more expensive, even on an after-tax basis, in the more expensive cities like San Francisco, Los Angeles, Seattle and San Diego.

Other contributing factors include increases in investor home purchases, second homes purchases and short-term rental conversions. But the primary reason is lack of supply, pure and simple. The solution for high home prices is increased supply of homes. But, that’s hard in areas with little buildable land. And inflation and higher costs of building materials and construction labor make that challenge even greater. And in areas where home prices are high, you don’t need to look far to find NIMBYism (not in my backyard) – efforts on the part of local community members to oppose any new projects in their neighborhoods. Environmental lawsuits, parking restrictions and height limits combine to crimp supply.

During the pandemic, many young people crashed in their parents’ basements. Today, they’re once again forming new households. We’re simply not building enough homes to keep pace with household formation, especially in the West – and we haven’t done so for decades. A recent study by the National Association of Realtors put the number of immediately needed housing units nationwide at 5,500,000 while a 2021 Freddie Mac study pegged it at 3,800,000. Big picture, we need another four to six million homes – good luck with that. The West’s housing affordability index in April was 88 and anything under 100 means owning a home is unaffordable for someone making the median household income.

Who Can Afford to Buy?

In general, unless you’re special (you earn more than the average person) or you’re incredibly handy (allowing for you to find that rare screaming deal on that amazing fixer-upper), you likely can’t buy a home in the western U.S. today. And if you are special, and you’re in the market to buy a house, you’re probably competing against other very special investors who often pay all-cash with quick closing periods. We’ve been selling our entry-level rental homes and receiving five to ten offers this spring was pretty typical. The market has cooled a bit with the increase in interest rates but it’s been a seller’s market (and tough for first-time buyers) for a while.

The Role of Investor Purchases

In the first quarter of 2022, investor home purchases represented 28% of single-family home sales in the U.S. and 74% of those purchases were made by smaller groups ranging from wealthy individuals to Airbnb investors. Much has been made in the media about groups like Blackstone’s Invitation Homes gobbling up homes like Godzilla at Thanksgiving but the data suggests that the vast majority of single-family home investors are smaller investors. Further compounding the issue is the secondary home market, which caught fire during the Covid-19 pandemic and saw an 80% jump in 2020 and remained 50% above pre-pandemic levels through February 2022.

What is my Daughter to do?

Realistically, future generations – especially those who want to live in desirable locations – will need to accept that they may be renters in perpetuity. Luckily, what they lose in home equity they gain in lifestyle flexibility, reduced maintenance requirements and access to neighborhoods they could otherwise not afford as a buyer. We’re already seeing this change amongst the Millennial and Z generations, as their idea of the American dream shifts from owning a suburban home with a white picket fence to renting in a cool, walkable neighborhood. And with the previously mentioned supply challenges continuing to gain steam, I suspect the trend of renting will do the same. The flip side is the headwinds facing homeownership are tailwinds for multifamily, benefiting Pathfinder and our investors.

Matt Quinn is Vice President at Pathfinder Partners, focusing on asset management activities. Prior to joining Pathfinder in 2009, Matt worked with a San Diego-based firm which consulted on mergers and acquisitions and with the Wealth Management division of a California regional bank. He can be reached at

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