How house hacking is helping Gen Z, millennials become homeowners

Gen Z and millennials are “hacking” the housing market as high prices and interest rates make affordability difficult.

The term “house hacking” refers to the practice of renting out a portion of your home or an entire property for an additional stream of income.

Almost 4 in 10, 39%, of recent homebuyers say the practice represents a “very” or “extremely” important opportunity, according to a new report by housing market site Zillow. That share is up eight percentage points in the past two years.

Younger generations are especially keen on the idea. In Zillow’s survey, more than half of millennial, 55%, and Gen Z home buyers, 51%, expressed positive views on house hacking.

Zillow polled more than 6,500 recent homebuyers between April 2023 and July 2023. Respondents were adults who moved to a new primary residence they purchased in the past two years.

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The additional income from house hacking can “help make those dreams of homeownership penciled into reality, given that there’s so many affordability constraints on the current market,” said Manny Garcia, senior population scientist at Zillow. 

The median sale price for a house in the U.S. was $413,874 in October, up 3.5% from a year ago, according to a report by real estate site Redfin.

The average rate for 30-year mortgages hit 8% in October, the highest level seen in 23 years, according to Bankrate. To compare, rates bottomed out slightly below 3% in January 2021.

While renting out portions of a newly owned property can help offset higher costs of a home, potential buyers will need to make a few considerations beforehand.

As home prices and interest rates have risen, potential homebuyers need a salary of $114,627 to afford a median-priced house in the U.S., a recent report by Redfin found. Redfin’s analysis used the median home price of $420,000 in August.

“In many places, you need to earn six figures to afford a starter home, so it makes sense for young people who are seeing how expensive homeownership is to want options,” said Daryl Fairweather, chief economist at Redfin. 

With few small starter homes available, a millennial or Gen Z buyer may have to jump on a more expensive home than they would have wanted, Fairweather said.

“Having the option to rent or have a roommate is important in an environment where there just aren’t that many small homes for sale,” she said. 

House hacking may help those homeowners by providing them additional income for expenses or even help cover the mortgage.

The opportunity to house hack may be short lived. In some markets, new apartment buildings are under construction that will have available units…