Gifts, down payments, and housing affordability

Recent evidence shows that homeownership rates among young households have declined substantially since the mid 1980s. Although factors such as late household formation and the increasing user cost of housing are contributing factors, reduced affordability is also a concern. Aggregate data indicate that first-time buyers are relying more heavily on gifts from relatives and less on own savings in accumulating the down payment. ; This paper explores the role of gifts in helping first-time buyers purchase a home using data from two different sources: surveys of recent home buyers in 18 cities between 1988 and 1993, and 1990 Boston loan applicants. The evidence shows that financial constraints are important in explaining the increased reliance on gifts, with the receipt of a gift being negatively related to income and wealth, and positively related to the one-year rate of appreciation of house prices. The evidence is mixed as to whether givers target gifts to certain types of households, such as young, married couples.