By Nathan Moeder
The Millennial generation, our nation’s largest population cohort, is growing up. Born between the early 1980s and 2000, this “bucket” of people which numbers over 82 million, with the oldest being 37 years old. Many demographers and marketing “experts” thought they knew this generation and its life desires. But I believe that there is much flawed thinking regarding the inclinations of Millennials, particularly as to their preferred lifestyle.
My biggest concern is that many believe that millennials are inclined to be “urban forever”. What we are finding, in fact, is that as they age, they are ever more inclined to move to the suburbs to raise their families. Contrary to recent stats showing a decline in homeownership rates, I believe that this will reverse and the desire for home ownership will prevail. This should be accompanied by a reluctance to sacrifice living space, or to maintain their residence in small units in the urban cores.
In fact, if the suburban neighborhood includes most of the walkable amenities that is familiar to them in urban neighborhoods, that will be sufficiently “urban enough”.
The Myth of the Shared Economy
I think the idea that Millennials would be permanently affixed to urban living, coupled with a presumed lower desire for home ownership, arose from the concept of the “shared” economy – where people would rather pay rent, lease, share office space and be footloose rather than be burdened by debt and obligation.
This all might have sufficiently described the aged 20’s or early 30’s Millennial. But they are now growing up. We cannot functionally or definitionally segregate millennials to this absolute standard of living. This is only part of the picture, and I believe a fading part. As with previous generations, life is constantly changing and so do desires and needs. The Millennial equation is much more complex than urban, shared, walkable and small.
In fact, research shows that Millennials are now coupling up and having children, albeit later in life. We expect that with this comes an aspiration for homeownership. For this reason alone, it is no coincidence that urban metropolitan areas including Los Angeles, San Francisco and New York are experiencing outmigration of Millennials to the suburbs, where homes are more affordable. In fact, a report completed for the Washington think-tank NDN reports that 43 percent of Millennials view the suburbs as their “ideal place to live”. In the Eastern U.S., where job growth is strong and housing is relatively affordable, homeownership rates among Millennials are the highest in the nation.
The Relevance of Market Research
Market research is not ever about “today”. We try to use market research as a baseline to measure future desires and expectations, with always the proviso that past is not necessarily prologue. Research compiled by the Urban Land Institute shows that regardless of their current lifestyle propensities, 70% of Millennials expect to reside in some type of single family dwelling in the future. Only 28% see themselves in multifamily buildings. Additionally, a full 70% of Millennials expect to achieve homeownership status in the future.
Because the Millennial cohort is spread over 20 years, it is helpful to view their housing needs as a continuum ranging from the early, “footloose” years to the later, more stabilized stages as they approach their fourth decade. The mistake that many make is focusing on this demand segment as a snapshot in time, rather than evolving as persons age.
Small units in urban areas may suffice today. But I must disagree with planners and analysts who suggest that 100% of Millennials want, or even expect, to live ”urban” forever. It isn’t prudent to ignore the other segment of Millennials who may very well emulate the propensities of their parents and even grandparents – who fled the City – to live in suburban settings with homeownership opportunities and a better quality of life for their families.
Don’t get me wrong. A portion of the population is well suited for long-term urban living, including singles, couples and even some families. There are attractive choices in neighborhoods throughout Downtown San Diego and the surrounding urban neighborhoods (e.g. Hillcrest, North Park, University Heights, Golden Hill, etc.). But we are deluding ourselves if we assume that every Millennial wants to live within a dense urban framework.
All of this explains why we need a balanced approach to regional growth.
Behind the “Affordability” Ball
This younger generation has had a rougher “go” entering their adult years. Student debt and poor job prospects due to the Great Recession has delayed this cohort in many financial ways. And I believe the younger generations will find it difficult to gain a foothold in expensive markets like San Diego because: 1) it is increasingly difficult to save money for a down payment, 2) there is an over-emphasis on multifamily housing, and 3) housing will become even more unaffordable.
This is a huge burden on Millennials. Within the City of San Diego, 46% of renters spend at least 35% of their income on rent. In North County, the percentage of renters is closer to 50%. Spending any amount over 35% of income on rent leaves little in the budget for saving – particularly when you factor in student debt. In fact, it is estimated that it takes 18 years to save for a down payment to purchase a home in San Diego. Even though most housing production since the Great Recession has been multifamily rentals, rents still increased 8.4% in 2016 and are up 33% since 2010! While rents may level off, I don’t see them decreasing anytime soon because of our inability to build fast enough to keep up with population growth – a completely different topic of discussion.
High rents bode well for development opportunities, particularly in the urban ring surrounding Downtown, where construction costs and land values are high and require greater densities. But this is not a housing crisis of cost alone. It is one of disparity and variety. The glaring disparity is that 82% of our growth over the next 35 years is anticipated to be multifamily. What does that look like? Well, if you take every person who wants to buy a single-family home and put them in a room, only 3 out of 10 will be able to buy a home.
If you actually buy into the idea that Millennials prefer small, urban and vertical, and don’t want to own, then I guess our problems are solved. In fact, wouldn’t that suggest that single-family homes will be discounted in price because few will want to live in them? Of course, that is absurd. Yet, either way, Millennials have a tough road ahead. It would be in our best interest to stop segregating them to a single category, and start treating and planning for them as the grown-ups they have become.