The Unattainable Dream: How Millennials and Gen Z Are Locked Out of Homeownership
Owning a home has long been considered a cornerstone of the “American Dream” and a key marker of financial stability in Western Europe. However, for millennials and Gen Z, the prospect of homeownership is becoming increasingly unattainable. With average salaries in Western Europe ranging from €25,000 to €40,000 and in the United States from $40,000 to $70,000, the reality of purchasing a home — where average prices range from €200,000 to €500,000 in Europe and similar in the U.S. — is daunting. This blog explores the economic challenges faced by these generations and why, for many, the dream of owning a home may remain just that — a dream.
The Harsh Reality of Salaries vs. Home Prices
Western Europe
In Western Europe, the average salary for a young professional typically ranges between €25,000 and €40,000 per year. This might sound like a reasonable income, but when compared to the average cost of a home — which can range from €200,000 in smaller towns to over €500,000 in larger cities like London, Paris, or Munich — the gap between income and housing costs becomes apparent.
United States
The situation is similar in the United States, where the average salary for a young professional ranges from $40,000 to $70,000. Meanwhile, the median home price in many areas hovers between $250,000 and $500,000. In major metropolitan areas like New York City, San Francisco, or Los Angeles, these numbers can be even higher, often exceeding $700,000.
The Impact of Taxes and Interest Rates
To understand the full scope of the challenge, we need to factor in taxes and interest rates. In both Europe and the U.S., income taxes can take a significant chunk out of one’s earnings. Assuming an average tax rate of 30%, the take-home pay for these income brackets is substantially reduced.
For instance:
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In Europe:
- A salary of €30,000 becomes €21,000 after taxes.
- A salary of €40,000 becomes €28,000 after taxes.
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In the U.S.:
- A salary of $50,000 becomes $35,000 after taxes.
- A salary of $70,000 becomes $49,000 after taxes.
These net incomes must then cover not just housing but all living expenses — food, transportation, healthcare, and more — leaving only a fraction available for saving towards a home.
The Mortgage Conundrum
Let’s assume a young professional wants to buy a home priced at €300,000 in Europe or $350,000 in the U.S. They would typically need a 20% down payment to secure a mortgage, which is €60,000 or $70,000, respectively. For many millennials and Gen Z, saving this amount of money is already a significant hurdle.
But let’s say they manage to scrape together the down payment. They then need to take out a mortgage to cover the remaining balance, which would be €240,000 or $280,000. With current interest rates around 5%, let’s calculate how long it would take to pay off such a mortgage.
Europe Example:
- Loan Amount: €240,000
- Interest Rate: 5%
- Mortgage Term: 30 years
Using a standard mortgage calculator, the monthly payment on a €240,000 loan at 5% interest over 30 years would be approximately €1,288. Over 30 years, this amounts to a total repayment of €463,680.
U.S. Example:
- Loan Amount: $280,000
- Interest Rate: 5%
- Mortgage Term: 30 years
The monthly payment on a $280,000 loan at 5% interest over 30 years would be approximately $1,503. Over 30 years, this amounts to a total repayment of $541,080.
The Problem of Affordability
Given these figures, let’s compare the mortgage payments to the net monthly income of our young professional.
In Europe:
- Monthly Income after Taxes (on €30,000/year): €1,750
- Monthly Mortgage Payment: €1,288
This leaves just €462 per month for all other expenses — an amount that is hardly sufficient to cover basic living costs, let alone emergencies or savings.
- Monthly Income after Taxes (on €40,000/year): €2,333
- Monthly Mortgage Payment: €1,288
Here, the individual is left with €1,045 per month for other expenses, which is slightly more comfortable but still tight, especially in high-cost living areas.
In the U.S.:
- Monthly Income after Taxes (on $50,000/year): $2,916
- Monthly Mortgage Payment: $1,503
This leaves $1,413 per month for all other expenses, which might be feasible but still very limiting, especially when considering other debts, such as student loans or credit card payments.
- Monthly Income after Taxes (on $70,000/year): $4,083
- Monthly Mortgage Payment: $1,503
This scenario leaves $2,580 per month for other expenses, making it somewhat more manageable, but still far from ideal given the high cost of living in many areas.
The Length of Mortgage Repayment
The prospect of paying a mortgage over 30 years is daunting, particularly when considering that the total cost of the home with interest is almost double the purchase price. Moreover, this doesn’t account for the rising costs of living, potential interest rate increases, or the financial impacts of economic downturns.
For those who do manage to secure a mortgage and start paying it off, the commitment is immense. It means being tied to a significant financial obligation for three decades, with little room for error or flexibility.
The Hidden Costs: Monthly Expenses
In addition to mortgage payments, young professionals must also contend with regular monthly expenses that further reduce their disposable income. Let’s break down some of the typical monthly costs in Europe and the U.S.
Europe:
- Electricity: €50 – €100
- Phone Bill: €50
- Internet: €25
- Car and Fuel Costs: €300
At the lower end, these expenses total €425 per month; at the higher end, they can reach €475 per month.
U.S.:
In the U.S., these costs are generally higher:
- Electricity: $100 – $200
- Phone Bill: $100
- Internet: $50
- Car and Fuel Costs: $600
This brings the total monthly expenses in the U.S. to between $850 and $950.
Calculating the Remainder
Let’s now calculate how much is left after deducting these expenses from the net income.
Europe:
- Monthly Income after Taxes (on €30,000/year): €1,750
- Monthly Mortgage Payment: €1,288
- Monthly Expenses: €475 (upper estimate)
Remaining: €1,750 – €1,288 – €475 = €-13
Here, the individual is already in the negative, indicating that living on this salary while paying for a mortgage is unsustainable.
- Monthly Income after Taxes (on €40,000/year): €2,333
- Monthly Mortgage Payment: €1,288
- Monthly Expenses: €475 (upper estimate)
Remaining: €2,333 – €1,288 – €475 = €570
Even at this higher income, the remaining amount is still tight, especially when considering unexpected expenses or the need to save.
U.S.:
- Monthly Income after Taxes (on $50,000/year): $2,916
- Monthly Mortgage Payment: $1,503
- Monthly Expenses: $950 (upper estimate)
Remaining: $2,916 – $1,503 – $950 = $463
- Monthly Income after Taxes (on $70,000/year): $4,083
- Monthly Mortgage Payment: $1,503
- Monthly Expenses: $950 (upper estimate)
Remaining: $4,083 – $1,503 – $950 = $1,630
While this scenario is more manageable, it still leaves little room for significant savings or unexpected costs, especially for those living in high-cost areas.
Conclusion: A Crisis in the Making
The combination of stagnant wages, high taxes, soaring home prices, and necessary monthly expenses has created a perfect storm that makes homeownership a distant dream for many millennials and Gen Z. For these generations, the idea of owning a home by the age of 30 — or even 40 — is increasingly out of reach, not due to laziness or poor financial management, but because of structural economic challenges that have been decades in the making.
If this trend continues, we could see a significant shift in the way future generations view housing and wealth accumulation. Renting may become the norm rather than a temporary phase, and the traditional markers of financial success may need to be redefined in light of these new economic realities. Without significant changes to the housing market, wage growth, and financial support systems, the dream of homeownership may continue to slip further away from the grasp of younger generations.
