Hacking Your Way to Homeownership: How Gen Z and Millennials Are Doing It

House hacking has emerged as a llfeline for younger generations on the path to homeownership
Updated June 6, 2024
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Millennial couple buys their first home through house hacking.

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With the dream of homeownership becoming increasingly elusive for Gen Z and millennials, "house hacking" is gaining popularity as a strategic move to overcome the challenges of soaring house prices and interest rates. The strategy includes renting out a portion of or the entirety of one’s home while occupying it to help collect money on the side.

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The rise of house hacking

Recent findings from Zillow indicate a significant shift in perception among recent homebuyers, with almost 4 in 10 (39%) considering house hacking a crucial opportunity — a notable eight-percentage-point jump over the past two years. Younger generations are particularly drawn to this concept, as over half of millennials (55%) and Gen Z (51%) homebuyers express positive views on house hacking.

The affordability problem

The median sale price for homes in the U.S. reached $413,874 in October, marking a 3.5% increase from the previous year. Simultaneously, the average rate for 30-year mortgages hit 8%, the highest in 23 years. According to a Redfin report, potential homebuyers now require a salary of $114,627 to afford a median-priced house. With starter homes in short supply, many individuals are forced to consider more expensive options than initially intended.

The appeal of house hacking may be short-lived, especially as new apartment buildings, particularly smaller one-bedroom units that make it more difficult to house hack, are set to hit the market. Redfin data indicates a cooling rental market due to increased inventory, with the rental vacancy rate rising to 6.6% in the third quarter. 

Although rent prices are stabilizing, the surge in available apartments doesn't address the larger issue of a "massive shortage of housing, especially affordable housing options," as noted by Manny Garcia, senior population scientist at Zillow.

Risks and considerations of house hacking

While house hacking presents a viable option for those needing extra cash, potential buyers should approach it cautiously. Despite the growth in available apartments, the U.S. still faces a significant housing shortage, making competitively priced homes attractive for potential renters edged out of the housing market.

However, significant risks are associated with relying on rental income to qualify for a mortgage. Banks typically will not consider potential rental income when determining eligibility for financing, requiring buyers to demonstrate they can afford the mortgage without relying on rent. If market conditions change, there is also the risk of being stuck with an expensive mortgage and unrented rooms.

Navigating the house hacking journey

For those considering house hacking, it’s important to research the risks. Consulting rental managers can help draft leases and determine appropriate rental rates in the area. Proper pricing and understanding local ordinances or homeowners association regulations are crucial to ensuring a successful house hacking venture so you can earn enough passive income to own a home.

House hacking can be a lifeline for Gen Z and millennials navigating homeownership challenges in today's dynamic real estate market. Still, it is not a cure-all for those dreaming of owning a home. While it may offer a temporary solution, careful consideration, thorough research, and financial planning are necessary to make the most of this housing trend. 

Bottom line

As the landscape evolves, house hacking provides a glimpse into the innovative strategies of younger generations for achieving the dream of homeownership. Still, it underpins the mounting problem of housing market accessibility in the U.S. While this works for some, it won't be an option for a large percentage of these generations that continue to struggle in their effort to own their own home.

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Author Details

Georgina Tzanetos Georgina Tzanetos is a former financial advisor who has been active in financial media for the past six years. She holds a master's in political economy from NYU, where she studied distressed labor markets.