Millennials and Homeownership
The uncertainty of where they'll live is creating new challenges.
Demographics is, in some ways, an exact science, built on hard evidence and solid numbers. But trying to make sense of current statistics can be tricky. Take, for example, the ongoing changes in the U.S. housing market. They will have significant repercussions for states, cities, suburbs and even Congress. But it’s not entirely clear what those repercussions will be.
Members of the millennial generation -- roughly those ages 24 to 35 -- have not been buying many houses lately, for reasons both cultural and economic. A faltering economy has hurt younger people disproportionately. In the past decade their incomes almost stalled, while the older age groups saw a combined increase of 11 percent. Plus, they’re carrying the crushing burden of student debt, at a level of more than $1 trillion nationally, triple what it was only a decade ago.
To these young people, the home-buying market looks scary. So they’ve spent less, saved more and, in the case of the youngest millennials, moved in with their parents in unprecedented numbers -- almost 9 million at the peak, up from a little more than 5 million 25 years ago. They’ve also delayed marriage by an average of six years compared with historical norms.
But despite conflicting reports, the situation may be changing. Millennials’ incomes are starting to climb and their unemployment rate is dropping: It’s now about 6 percent. In 2014 they experienced 60 percent better job growth than the nation overall. In addition, millennials make up the best-educated generation ever -- educated people generally are the group most motivated to buy homes.
Recent polls show that this age group is increasingly positive about homeownership. Many of them are entering the age bracket where they’re most likely to get married, so even if fewer people tie the knot than historically, the overall numbers of newlyweds are beginning to increase.
Spanning all age groups, homeownership has been running between 3 and 6 percent below historical norms, so that, coupled with a predicted new wave of interest from millennials in a market that already has a tight supply, leaves most prognosticators increasingly bullish on the housing industry. But there remains the question of where the market will take off and what kinds of housing will be at the center of the comeback.
One answer to that question could be downtown. The central districts of many cities are booming, and millennials are at least partially responsible. College-educated young people have been moving downtown in unprecedented numbers in nearly 40 of our 50 largest cities.
Interestingly, the younger set may be competing for homes with their own parents, because the boomers are beginning to return to the market. That is partly due to an uptick in the divorce rate among empty nesters, but it is also because an improving economy has given them more financial flexibility. Some of the more affluent boomers are accompanying their kids into the downtown market because they want to downsize into smaller, more efficient housing closer to the action.
The boomer/millennial mix is particularly apparent in the recent boom in apartment construction, which hit a level of almost 400,000 units in 2015, the highest point in almost three decades, accounting for more than a third of all home construction last year.
But as millennials start having kids, will they leave the city for the added space and security of the suburbs? The research is conflicting. There is no doubt that many will make the move, particularly as the costs of home ownership in cities continue to escalate.
Polling by the Global Strategy Group, a public relations firm, indicates that in making the decision on where to live, one key ingredient for millennials is transportation. Two-thirds said access to high-quality transportation was one of their top three criteria; almost half of those who owned a car said they would give it up if public transportation options were adequate. The other leading issues were walkability, parks and good schools.
A study done for the National Association of Homebuilders concludes that the demographics are encouraging homebuilders to produce greener and healthier homes. Again, the boomers appear to be leading the way because, according to the study, “younger buyers are more influenced by the broader impacts of their behavior on the world at large, while older buyers are more focused on the specific financial and physical performance of their home.” In other words, boomers are more likely to actually spend money on green homes and eco-friendly upgrades.
Not surprisingly, the added costs of going healthy and green are a problem, adding a predicted 5 percent in construction costs. Those costs may be mitigated by growing use of new techniques and materials, but what is really important is an increased acceptance by government that added investment in building green should be taken into account in the valuation of properties for financing purposes.
For many local governments these trends present a challenge: how to keep the younger generation in the cities after they start having kids. A solution will necessarily involve expanding pre-K programs, improving schools, and providing reliable transportation and open spaces, as well as zoning to protect family-sized homes.