Homebuyers are Choosing Between Daycare and Mortgages

The U.S. Department of Health and Human Services defines childcare as affordable if it costs 7% or less of a family’s income. Yet, in every single state, the typical family far exceeds that threshold, qualifying them as “cost-burdened” by this essential service.

The timing couldn’t be worse as 1 in 3 homeowners and 1 in 2 renters are currently considered cost-burdened by housing—putting the two biggest and most essential costs of a family budget into direct competition.

“Families with young kids are facing this double whammy,” explains Yuliya Panfil, director of the Future of Land and Housing Program at New America, a think tank. “If they don’t pay for child care, then they can’t work, and if they can’t work, then they can’t pay rent. So it’s this vicious cycle.”

And it’s a dire assessment of the reality families face today. As a shortage of 4.03 million homes collides with a shortage of 4.2 million childcare slots, advocates argue these crises are now inextricably intertwined.

The uninsurable American Dream

The fact that childcare costs have risen in near lockstep with home prices is no coincidence. For many childcare providers, their largest fixed cost is rent—and as commercial and residential property values have surged, those overhead costs are passed directly to families.

That shift has hit residential providers—often the most affordable and flexible options for families—particularly hard.

“Running a childcare business is not something that one does for a huge profit, and so the smallest change can really have ripple effects,” explains Erica Meade, policy director of the New Practice Lab at New America. “If their rent is higher or their insurance is higher, it has to get passed on to families, or they eat it.”

As more of these providers have closed, that’s also created scarcity, which in turn drives up costs.

Today, more than half of the U.S. population (51%) lives in a childcare desert, defined by the Center for American Progress as a census tract with more than 50 children under age 5 and either no childcare providers or so few options that there are more than three times as many children as licensed childcare slots.

As if that wasn’t enough, childcare centers are facing an insurance crisis of their own in another mirror to the skyrocketing premiums that are hitting some housing markets.

Samantha Phillips, an early education insurance agent and advocate, says that she’s watched premiums swell from around $10,000 per year for the typical site in 2023 to more than $25,000 per year today. And in high-risk areas or sites that have had claims in the past, policies can cost as much as $45,000 to $75,000 a year per site. 

In every conversation for this article, one theme was clear: Families are in a moment of crisis because the industries they rely on are in crisis. To offer relief to one will require offering relief to all.

As Phillips put it: “I feel like I’ve spent the last three years literally screaming from the mountaintops that doomsday is coming and doomsday is here, and doomsday is getting worse.”

Children pay the highest price for expensive childcare and housing

The clearest connection between housing and childcare costs is found in the demographic most at risk of losing their homes.

Minors face the highest risk of eviction in the U.S., according to research from the Eviction Lab. They account for roughly 40% of all individuals threatened with displacement annually. Furthermore, households with children represent over half (52%) of all eviction filings.

“Nearly 3 million kids are on the receiving end of an eviction notice each year, which is just shocking,” says Panfil. “For so many families, their two largest household budget items are rent and childcare. And in cities like DC, where I live, the cost of childcare actually is higher than the cost of rent for many, and that’s per child.” 

That data is a stark illustration of the impossible trade-off the most cost-burdened families face: Pay for childcare so you can work, but then fall short on rent; or pay the rent, but lose your ability to work because you can’t afford the childcare.

Is daycare the new down payment?

Data from the Economic Policy Institute (EPI) shows that a median-income family in every state exceeds the 7% childcare affordability threshold by 2 to 6 percentage points. For minimum-wage workers, the burden is even more severe—ranging from 29 to 108 percentage points. 

Elise Gould, a senior economist at the EPI, began noticing a troubling shift in the data a decade ago.

“All of a sudden, childcare became more expensive than housing in a number of counties across the country,” she says. “It really surprised us.”

Today, her research shows that infant care costs more than in-state college tuition in 29 states and the District of Columbia.

Joel Berner, senior economist at Realtor.com®, says that these pressures are hitting the housing market, too.

“We’re seeing it in the struggle of first-time homebuyers,” he says. “This group is of the age that they are sensitive to both mortgage rates (most don’t already own a home) and childcare costs, and they’re getting squeezed in the West and in coastal markets.”

When analyzing how much of a median family’s income is consumed by the combination of a typical mortgage and infant care—it’s those regions in the Western and coastal markets that stand out. Hawaii, California, and Massachusetts are affected the most.

“Saving for a down payment is the best thing a first-time buyer can do in this environment, but when other costs like childcare are too high as well, there’s not much left after the bills are paid,” he adds.

The math is even brutal for those who’ve been able to break into the market.

In Hawaii, which ranks as the sixth most expensive state for infant care, childcare alone consumes 20% of a median family’s income, then adding a typical mortgage payment brings that total to 75% of their earnings.

Meanwhile, California ranks fourth for infant costs, then adding the typical mortgage on top of childcare consumes more than 71% of the typical family’s income.

The same is true in Massachusetts, which ranks as the second most expensive place for childcare. But the math is so restrictive in the Bay State that only 8% of families in the state can afford infant care without being cost-burdened.

And while these figures represent typical families on the median income, the squeeze is far more acute for minimum-wage workers.

In New Hampshire and Wisconsin, childcare costs alone would consume 115% and 112% of a worker’s total earnings, respectively. 

In a cruel twist, Gould notes that childcare workers are often the most acutely burdened by the crisis they help manage. 

“Childcare workers are the ones that are doing this valuable work to take care of our children, and they themselves are paid such low wages, and they’re undervalued for that work, that they can’t afford childcare themselves,” she says. 

On average, childcare workers would have to spend between 30% and 74% of their income on childcare alone—before even considering the cost of housing.