Freddie Mac: Child care costs put a squeeze on housing affordability

Plenty of attention has been given to the impact of student loans on the housing market, with many young prospective buyers saying this burden is forcing them to delay a home purchase or limit the amount of money they can spend. However, a new analysis by Freddie Mac suggests that child care expenses may be having an even more pronounced effect on the market.

The recently published report determined that the real price of child care, adjusted for inflation, has increased 49 percent between 1993 and 2018. During the same period, the real cost of housing increased by just 14 percent.

Freddie Mac noted how education expenses were the only cost that grew at a faster rate—90 percent—over the past 25 years. Food and transportation costs were fairly steady, while the cost of apparel has declined.

The report acknowledged that student loan balances have exploded in recent years, rising 280 percent between 2005 and 2015. At the same time, monthly payments have only grown by 50 percent and are considerably lower than child care costs. The average student loan payment increased from $234 in 2005 to $351 in 2015 – about half of the typical monthly child care cost.

"The list of expenses for a family can be never-ending, and we know from Freddie Mac's semiannual survey of homeowners and renters that the cost of everyday life presents challenges for many looking to buy or rent," said Sam Khater, chief economist at Freddie Mac. "One of the major challenges, when it comes to affording a home, is the high cost of child care. Our analysis finds that those families paying for child care generally are left with less money for housing."

Freddie Mac says the average family spends $715 a month on child care. This cost was equal to half of the median mortgage payment of $1,566 in the United States in 2018. It also represented nearly 80 percent of the national median rent cost of $899.

The expense rose to $758 in families where both parents were employed and $948 for families with children under the age of five. Average monthly costs dropped to $493 for families with children between the ages of five and 14, and $487 in families where the primary caregiver was not employed.

Assessing three resources for child care costs—Child Care Aware of America, Kubota, and Herbst—found that the average monthly cost for center-based daycare was between $680 and $882. Family-based daycares were less expensive, averaging $597 to $806 a month. Herbst determined that families using a non-relative for daycare paid an average of $575 per month in child care costs, while the expense dropped to $375 when a relative provided care.

These costs were more burdensome for families with lower incomes. In households earning less than $1,500 a month with children under the age of 15, child care costs ate up about 40 percent of their income on average. Families earning more than $4,500 a month spent an average of only 6.7 percent of these earnings on child care.

Costs also varied considerably by state, with the highest expenses in the Northeast and on the West Coast. The average proportional cost of center-based or family daycare ranged from 7.9 percent in Mississippi to 19.3 percent in Washington, D.C.

Freddie Mac said the median family income has increased in the past quarter-century, rising 18.7 percent between 1990 and 2018, which has helped contain the share of child care costs as part of a family budget. The average family with children under five years old spent 9.3 percent of their total income on child care in 1990, and this share only rose to 10.7 percent in 2011.

The report also noted how an increasing share of families is opting for more economical options for child care. Forty-two percent of families with children under the age of 15 paid for child care in 1997, but this share had fallen to 32 percent in 2011.

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