When it comes to demographics and housing, most everybody I know in the housing industry seems to believe that history will repeat itself. That is to say that they think millennials, like their baby boomer parents, will rent first, marry and have kids, and then buy their first home when they’re about 30 years old.
There is some strong supporting evidence for that point of view. With the first waves of millennials finishing school and forming households, the multifamily market, unlike the single-family market, made a very quick and full recovery from the recession. At 393,000 units, multifamily starts last year were at the highest level since 1988, vacancies were at record lows, and rents were increasing nicely.
True believers in the history-will-repeat-itself theory of housing find it fairly easy to explain away why so few of those renters aren’t, as expected, automatically turning into buyers. First, they point out millennials are, for one reason or another, delaying marriage. Then they note that millennials are saddled with $1 trillion of student debt and face tougher-than-ever lending standards. And don’t forget, they say, that the Great Recession forced many millennials to accept lower-paying jobs, which has made it harder to save for a down payment. And then there’s this: fully one-third of 18 to 34 year olds are still living with their baby boomer parents, which means there’s a huge pool of latent demand for housing. (As one wit put it, most millennials are either renters or squatters.)
Those who are still confident that millennials will create a buying boom for housing also like to point out that in survey after survey large majorities of millennials:
- Agree (with their parents) that homeownership is an important part of the American dream;
- Expect to marry and have children;
- and See suburbs (even more so than their parents) as an ideal place to live.
Funny, though, that despite all the faith the industry places in millennials to behave like their moms and dads and sooner or later buy a house, very few builders are legitimately targeting these 30-somethings. In the 1970s and 1980s, when boomers were first-time home buyers, more than half of the new homes completed had fewer than 1,600 square feet. Since 2010, when the very first of those considered millennials turned 30, only about 15% of the new houses completed were under 1,600 square feet, whereas the number of homes constructed with more than 3,000 square feet was higher than any year in the 20th century.
Maybe that’s one important reason why the nationwide rate of homeownership among 25 to 35 year olds declined 18% from 1990 to 2015. And in high-cost markets, such as California, it declined 25% during that time frame.
So it seems to me that if history is to repeat itself, more builders are going to have to commit to building smaller, more basic houses. Millennials apparently aren’t yet ready—or able—to buy a McMansion.