From theatlantic.com:
Millennials, of course, are sharing more than transportation: they’re also sharing living quarters, albeit begrudgingly, and with less gee-whiz technology involved. According to Harvard University’s Joint Center for Housing Studies, between 2006 and 2011, the homeownership rate among adults younger than 35 fell by 12 percent, and nearly 2 million more of them—the equivalent of Houston’s population—were living with their parents, as a result of the recession. The ownership society has been overrun by renters and squatters.
Nine out of 10 Millennials say they eventually want a place they own, according to a recent Fannie Mae survey. But this generation’s path to homeownership is fraught with obstacles: low pay, low savings, tighter lending standards from banks. Student debt—some $1 trillion in total—stalks many potential buyers as they seek a mortgage (or a car loan). At a minimum, homeownership rates are highly unlikely to soon return to the peaks they hit during the housing bubble.
Still, in the next decade, a group of people the size of California’s population—most of them Millennials—will likely come together to form new households. The question is: Where, and in what manner?
In some respects, Millennials’ residential aspirations appear to be changing just as significantly as their driving habits—indeed, the two may be related. The old cul-de-sacs of Revolutionary Road and Desperate Housewives have fallen out of favor with Generation Y. Rising instead are both city centers and what some developers call “urban light”—denser suburbs that revolve around a walkable town center. “People are very eager to create a life that blends the best features of the American suburb—schools still being the primary, although not the only, draw—and urbanity,” says Adam Ducker, a managing director at the real-estate consultancy RCLCO. These are places like Culver City, California, and Evanston, Illinois, where residents can stroll among shops and restaurants or hop on public transportation. Such small cities and town centers lend themselves to tighter, smaller housing developments, whether apartments in the middle of town, or small houses a five-minute drive away. An RCLCO survey from 2007 found that 43 percent of Gen?Yers would prefer to live in a close-in suburb, where both the houses and the need for a car are smaller.
Wholly apart from their urban sensibility, townhouses and other small houses are more affordable, all else equal, and developers know that to attract Millennials, they need to cater to tattered bank accounts. “The types of properties young people are buying now are different from what [that age group] bought five years ago,” said Shannon Williams King, the vice chair of strategic planning at the National Association of Realtors. “They are within walking distance of shopping centers. These buyers want bike shares and Zipcar. They like feeling connected.” In short, the future of the house might look a lot like the future of the car: smaller, cheaper, built for a new economy.
If the Millennials are not quite a post-driving and post-owning generation, they’ll almost certainly be a less-driving and less-owning generation. That could mean some tough adjustments for the economy over the next several years. In recent decades, the housing industry has usually led us out of recession. When the Federal Reserve lowered interest rates in the midst of the sharp recession of the early 1980s, for instance, a construction boom helped fuel the “Reagan Recovery.” With the housing market moribund, the Federal Reserve has lost a key means of influencing the economy with lower interest rates. The service-led recovery we’ve gotten instead is not nearly as robust.
Smaller houses built in dense, mixed-use neighborhoods generally take longer to build than McMansions on green-field sites. And of course, because they require fewer fixtures and furnishings, their construction spurs less economic activity.
What’s more, both construction and automaking are solidly blue-collar sectors. They employ millions of middle-class workers, who could be hurt by a transition away from home construction and auto manufacturing. The tech companies that sell personal electronics and provide high-speed Internet connections don’t need as many workers. And the jobs they do create—domestically at least—skew heavily toward the top of the socioeconomic ladder.
Yet in the long run, there’s good cause for optimism as well. Nobody is suggesting that the American consumer has bought her last house or car—only that houses and cars may lose some of the outsize importance they’ve had to the economy for the past 10 or 20 years or more. “There are a lot of countries, Germany for example, where homeownership rates are a lot lower than ours, and they have healthy incomes,” said Robert Lerman, an Urban Institute fellow in labor and social policy. Simple arithmetic says that if Americans spend less money on cars and houses, they’ll have more money left over to spend or save—and not all of that will go to electronic gadgets.
Education is the “obvious outlet for the money Millennials can spend,” Perry Wong, the director of research at the Milken Institute, told us, noting that if young people invest less in physical things like houses, they’ll have more to invest in themselves. “In the past, housing was the main vehicle for investment, but education is also a vehicle.” In an ideas economy, up-to-date knowledge could be a more nimble and valuable asset than a house.
What’s more, the shift away from traditional suburbs toward denser, urban-light living could have major economic-growth implications on its own. Economic research shows that doubling a community’s population density tends to increase productivity by anywhere between 6 percent and 28 percent. Economists have found that more than half of the variation in output per worker across U.S. states can be explained by density. Our wealth, after all, is determined not only by our own skills and talents, but by our ability to access the ideas of those around us; there’s a lot to be gained by increasing the odds that smart people might bump against each other. Ultimately, if the Millennial generation pushes our society toward more sharing and closer living, it may do more than simply change America’s consumption culture; it may put America on firmer economic footing for decades to come.
Would Casey Serin be considered a Millenial?
I have two kids… both are Millennials. Both own homes. Both lived in the city for awhile and escaped to the suburbs. While the live in their house differently (large common areas with smaller bedrooms), they both are happy with their decisions. They left the city because noise and crowds are only cool up until the point that they’re not. I think we all went through the same thing. They like their yard, garage to put their “stuff” (hard to have dogs, mountain or road bikes, camping stuff, tools, laundry equipment, BBQ, garden, etc., in a one bedroom apartment). They also correctly came to the conclusion that owning (for them) is cheaper than renting. My daughter grew up (possibly from her career) and needed colors on her walls. She wanted a kitchen that she could cook in with real “big girl” appliances – not low grade crap in rentals. She eats healthy so restaurants aren’t that attractive. My son loves to cook (and so does his SO) so a chef’s kitchen is important to them.
Cars? Still important. It’s just that many won’t bury themselves in debt for one. They’re transportation to most. My daughter didn’t get a license until she graduated college and realized she couldn’t rely on her friends to drive her to work 2,000 miles away…. so she succumbed. The reason she didn’t get a license (so she says) was that she didn’t want to be responsible for the vehicle when it was in her hands. Now? In her words: Her “practical car” may succumb to something that’s “whee”.
Some also say luxury watches are “out” as well. I have one Millennial that owns one as she is in what could be considered the “fashion industry”. The other is content with using his iPhone to track time. Of course, he’s always late – but that’s not as relevant as he works from home.
The only thing I get from these articles is that anyone who tries to put a generation (or situation) in a single box is usually wrong at least 50% of the time.
This is the reason quality rentals are needed.
Kick the deadbeats out sell to the highest bidder and let them rent out the property to those that can pay. It’s time for banks/gov to convert non performing assets into performing assets.
It’s will be interesting to see what happens in the housing market the day after the election.
I have been hearing this nonsense for over 30 years. I had friends that graduated from college in the mid-70’s and moved to New York and other cities. Once the first kid appeared, they made their exit to the suburbs.
Nothing’s changed. This is a fantasy invented by city planners that need an excuse for their high density and public transit plans. The reality is what El Katz describes.
“It’s will be interesting to see what happens in the housing market the day after the election.”
It will be interesting to see what happens after the election in general terms across the spectrum; which may in turn impact the housing market in assorted directions. Will we finally know the answer to the question – how long can you kick that can?
As long as there’s lenders that are willing to provide highly leveraged loans at affordable interest rates there will always be willing buyers. Home ownership will always be a desirable goal. Millenials aren’t necessarily living in the city and urban environment by choice, a lot of it has to do with the debt burden they’re already carrying.
The only question is what happens when people realize the total debts of society can’t be paid. When the debt ponzi eventually resolves itself (either via severe deflation or hyper inflation) all assets priced with leverage will collapse on a relative basis. That could mean your average home is 2 million dollars but the average income will also be 2 million dollars, or it could mean your average $300K home is worth $100K and average salaries are $50K. It could also be a long wait until we eventually get there, but it’s pretty certain that the debt bubble will eventually resolve itself and it won’t be good for assets priced in debt.
Livin, there is a lot of grey area between the two extremes you propose and not all outcomes are bad for assets.
Agreed, I don’t think cali can predict that “all assets priced with leverage will collapse on a relative basis.”
We’ve already seen a lot more people stick with their underwater homes than we predicted.
The government’s debt bubble is a problem for the government.
They are under-estimating the willingness of taxpayers to keep paying more taxes forever. They can tell their creditors they can’t pay, and then suffer the consequences.
Certainly we can muddle along for quite some time (maybe years or decades), I’d guess we have less than 10 years but you never know. Japan has shown that you can make it work for quite some time, but all exponential growth runs into a wall at some point. It’s a fundamental fact of arithmetic. Of course even if you manage to muddle along without the bubble deflating at a high level of debt assets priced in debt tend to under perform.
Many debt scenarios turn out quite well for leveraged assets.
Imagine if you had a fixed-rate mortgage in Zimbabwe or Weimar Germany.
If you’re taking out a 3.75% 30-year-fixed to lever up 5x, it’s hard to see how that turns out badly unless the Fed stops printing and Obama stops spending.