Housing Regulations and Occupational Licensing Are Hurting Millennials
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Commentary

Housing Regulations and Occupational Licensing Are Hurting Millennials

From high housing prices to limited employment opportunities, government is the cause of, not the solution to, the challenges we face.

Millennials and Gen-Zers have long been stereotyped and derided as lazy and self-centered, but in the wake of the Great Recession and the economic fallout from the coronavirus pandemic, we’ve recently been ascribed a new label—hopeless. However, as history has shown, young people can emerge more prosperous from periods of economic hardship. That is, if the government doesn’t get in the way.

A recent article in the Washington Post deemed millennials to be “Unluckiest Generation in U.S. History.” Another, from The Atlantic’s Annie Lowrey, declared that millennials are the new “Lost Generation.” As Lowrey notes, many millennials entered the workforce amid the Great Recession of the late 2000s, leaving many saddled with debt and unable to find secure employment. To make matters worse, younger workers comprise a disproportionate share of employment in the industries hit hardest by the economic impacts of COVID-19.

There is some evidence that today’s young people are already faring worse than our parents fared at the same age. A 2019 Pew report found that millennials have less wealth, are less likely to own a home, and are starting families later than previous generations. But back-to-back economic calamities don’t inherently doom today’s young workers to a lifetime of economic hardship. Rather, the greatest threat to our economic success is the growing thicket of onerous regulation that increases the cost of housing, makes it harder to find work, and exacerbates economic inequality.

The homeownership rate among millennials is about 8 percentage points lower than Baby Boomers and Gen-Xers when they were in this same age group. The explosive rise in home prices is a key driver behind that trend. While home prices have historically tracked closely with construction costs, prices have outpaced costs since the mid-1980s. This divergence is largely due to regulations that help limit the supply of housing.

Regulations like lot-size minimums, density restrictions, and parking requirements—collectively referred to as “exclusionary zoning” policies—constrict supply by reducing the amount of housing that can be built in a given area. Exclusionary zoning protects the property values of existing homeowners, but prices many potential homebuyers, especially younger ones, out of the market. The supply-limiting effects of these regulations can be observed in both urban and suburban settings—in rising rents and in rising single-family home prices.

Exclusionary zoning could also be contributing to growing income inequality. Land use regulations tend to be most restrictive in growing coastal cities with the greatest opportunities for employment, and regulations in those areas have only become more stringent since the Great Recession. Consequently, young workers who might otherwise flock to these areas can’t afford to relocate because of unnecessarily high housing costs.

Rising housing costs aren’t the only thing reducing geographic mobility and employment opportunities for young workers. Over recent decades, the number of laws requiring workers to receive government permission to work has risen dramatically. In 2019, more than 20 percent of American workers held an occupational license compared to less than 5 percent in the 1950s. There is little evidence these laws accomplish their stated goal of improving quality and safety. However, mounting evidence suggests that occupational licensing laws reduce economic mobility and opportunities for employment.

The growth of occupational licensing laws has been particularly detrimental for young workers. Similar to the way exclusionary zoning benefits existing homeowners to the detriment of newcomers, burdensome occupational licensing requirements inflate the wages of older, existing workers by creating barriers that prevent new workers from entering licensed occupations. As a result, licensing laws increase prices for consumers and shift income away from younger workers.

Licensing laws may also be contributing to the decline in entrepreneurialism among millennials. An analysis from the Goldwater Institute, for example, found that states with more licensing laws had lower rates of low-income entrepreneurship. Only 4 percent of millennials reported as being self-employed at age 30 compared to 5.4 percent of Gen-Xers and 6.7 percent of baby boomers at the same age.

As noted in a White House report during the Obama administration, licensed workers are more likely to be self-employed than non-licensed workers. Restricting entry into entrepreneurial occupations through licensing requirements slows job growth and makes it harder for young people to climb the income ladder.

Faced with the consequences of overregulation, we must choose between scaling back the role of government or doubling down on heavy-handed interventions. It is understandable that millennials and Gen-Zers would be tempted to embrace bigger government as a solution to our economic anxieties but greater involvement will do more harm than good. As it is, young people are already suffering under government overreach and will eventually bear the burden of our ballooning national debt and unfunded liabilities. The last thing we need is to have more income siphoned away through taxes or more jobs destroyed by legislative fiat.

Our future will not be determined by economic crises, but rather how we respond to them. Millennials must recognize that from high housing prices to limited employment opportunities, government is the cause of, not the solution to, the challenges we face.

Vittorio Nastasi

Vittorio Nastasi is a policy analyst at Reason Foundation where he works on Florida policy issues including education reform and water quality management.