Child-care costs a hurdle for first-time home buyers

The damping effect of student loan debt on homeownership has been much discussed. Student loan debt reached a record of $1.41 trillion in 2019, according to the Experian credit report agency, up 33% from $1.06 trillion in 2014.

But another expense also may be delaying some from entering the housing market: child-care costs. A recent study by Freddie Mac found that, adjusted for inflation, child-care expenses jumped by 49% over the past 25 years. During that same period — 1993 to 2018 — housing costs rose by 14% when adjusted for inflation.

Freddie Mac's research found that families with child-care expenses had less money to spend on their housing costs.

According to Freddie Mac, families spend an average of $715 per month on child care. For families with younger children, the cost averages $948. The percentage of income spent on child care varies, but hits lower-income families harder. Researchers found that families that earn less than $1,500 per month spend an average of 40% of their income on child care. Families with a monthly income of $4,500 and more spend about 7% of their income on those costs.

Child-care costs vary widely according to location, too. A study by Child Care Aware of America found that nationally, families with children who use center-based and family day care spend 13.3% of their income on child care. Families in Washington spend the highest percentage in the country, with 19.3% of their income going to child-care expenses.

The only expense that has risen more than child-care costs over the past 25 years is education, which increased by 90% between 1993 and 2018. Child-care expenses are as high as about half the national median mortgage payment and nearly 80% of the national median rent.

The impact of high child-care costs means families have less money to save for a future move to a larger rental home or to buy a home. Student loan payments, while also burdensome, averaged $378 a month in 2019, according to Freddie Mac, which is about half the average cost of child care.