Can Gen Z Afford To Retire If They Never Own a Home?
Written by
John Csiszar
Edited by
Amber Barkley
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Homeownership has long been seen as the path to wealth in the United States — indeed, some consider it to be a cornerstone of the American Dream. But if you’re a Gen Zer just starting out and you’re already panicked about not owning a home, fret not. Owning a home is not the only path to a successful retirement.
In fact, some experts suggest that housing isn’t even a great long-term investment and that you might be better off renting instead of owning, anyway. Here’s a look at why you might want to avoid relying on your personal residence to be your primary asset and how you can afford to retire using other means.
Cons of Owning Your Own Home
Gen Zers are generally just starting out in the workforce, earning decent paychecks for the first time in their lives. Typically, one of the first financial goals — including for many Gen Zers — is to save up enough money to put a down payment on a home. But before you start going down that road, it might pay to do the math.
Owning Can Cost More Than Renting
A 2023 study by Florida Atlantic University and Florida International University concluded that for the “vast majority” of the U.S., renting actually made more financial sense than buying. Part of the reason for this is that the price of homes remains quite high in most areas of the country. In fact, according to the study, homes are still selling “for more than they should” in 97 of 99 markets.
The Cost of Homeownership
Something else that many people overlook is that homes have many additional costs on top of simply paying the mortgage. Property taxes, homeowners insurance, homeowners association dues — if applicable — and private mortgage insurance — if you put down less than 20% — can all add up. And this doesn’t even factor in home maintenance costs, which most experts suggest average about 1% of the value of your home every year.
This combination of high prices, expenses and limited near-term capital appreciation could make renting a better way to build wealth.
If housing prices were to correct over the next few years, you could end up underwater on your home, essentially losing the amount of the down payment you make. But even if homes don’t go down in value, markets in some regions of the country just by nature appreciate at slower rates than in others. If you pick a home in a slowly appreciating region, you can often build long-term value more rapidly by investing in other options.
Can You Afford To Retire Without Owning a Home?
Buying a home involves much more than just a financial investment. A home provides shelter and a place to build memories with your friends and family, for example. But in terms of building a nest egg, there are other options beyond buying a house, and some may be even better.
The stock market is just one example. According to Forbes, homes appreciate by about 4% per year over the long run. Of course, this can vary greatly from location to location, as some homes may appreciate at 8% or more, while others may not go up much at all. But the stock market has a long-term average return of 10%.
Investing in Stocks vs. Buying a House
Imagine a scenario in which you put down $70,000 on a $350,000 home that appreciates at 4% per year. All-in housing costs run you about $2,500 per month, vs. the $1,800 that you might pay in rent instead. After 10 years, that home might appreciate by about $172,000.
But if you instead put that $70,000 down payment and the $700 per month you’re saving by renting instead of owning into the stock market, at a 10% annual return, you’d have about $332,884 after 10 years instead.
Of course, you would have paid down your mortgage some over those 10 years, and you would receive tax benefits along the way. But just in terms of gross return, you could almost double the amount of your home profits by putting that money in the market instead, under this scenario.
The Bottom Line
Owning a home can indeed be a good investment. In addition to potential appreciation — and the other ancillary benefits that housing brings — owning a home provides numerous tax benefits that can help make it more financially appealing. Owning a home also leverages your returns, as you’re only putting down 20% of the value of your home — or perhaps even less — while still enjoying all of the potential upside.
But if you don’t want to buy a home as your primary investment, there’s no reason to think that you can’t still afford to retire someday. If you make wise investments, you may even do better over the long run than relying on your home to fund your nest egg.
Just know that returns in any market are variable, and even long-term averages can be violated over short periods of time. This is why diversification — whether or not you ever own a home — is a sound way to reduce the overall risk of your investment portfolio.
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