Mike Marshall contributed to this post.
It is considered by experts to be one of the biggest challenges facing the housing market today. The so-called “Millennials” – the generation following the once-considered-rudderless Generation X – has yet to move into the housing market en masse. This young cohort has been saddled by many interconnected issues: a weak economic recovery, stagnant wage growth, high levels of student loan debt, rising rental rates (in part due to erstwhile homeowners now renting instead), tighter credit standards (another contributor to the former), postponement of family formation, and changing demographics within their own ranks. The latest generation has yet to provide a boost to the economy or a stimulus to the housing market in any meaningful way, which would have Americans feeling better about their overall wealth.
The question by many has been whether Millennials can save the housing market. For others looking at this trend, it’s been quite the opposite: What policy changes can be made to assist Millennials who are increasingly without the means to move out of their parents homes and take the next step toward owning their own home?
During BPC’s 2014 Housing Summit, an expert panel convened to examine this demographic realignment. While it appears the American dream of homeownership is still on the minds of this younger generation, many among them possess considerable doubts, perhaps realistic doubts, about the likelihood of their achieving that piece of the dream any time soon. The shifting attitudes toward homeownership, likely related to their unfortunate economic experience, could turn when their economic position improves, as Richard Smith, BPC Housing Commission Member and CEO of Realogy Holdings Corp., believes it will but not overnight.
On top of the economic realities that are causing Millennials to postpone forming new households, they are also increasingly minorities and have historically lower propensities for home ownership due to a number of other factors. This large shift will further dampen whatever move into homeownership that might otherwise occur.
There seemed to be consensus among the panel that the availability and tightness of credit was a major culprit. However, Mark Zandi, Chief Economist for Moody’s Analytics, believes his colleagues are forgetting a step: “I agree with availability of credit [as a policy issue that needs to be addressed]…. We are overcorrecting. Enough is enough. But having said that, I don’t think access to credit is the biggest problem with Millennials,” he argued. “The biggest problem with Millennials is getting out of their parent’s house. Four million more [young people] are living with their parents than were living with them 10 year ago. They will not go from living in parent’s homes to buying a home. They will go to renting first.”
Jacob Gaffney, Executive Editor of HousingWire, who moderated the Demographic Realignment panel for BPC, seemed to concur, “The housing ladder seems to be missing a few rungs.”
Jonathan Reckford, president of Habitat for Humanity International, the largest homebuilder in America, which has experienced success in getting first time buyers into homes, sheds even more light on the process which has been heavily affected by the Great Recession: “Preparation time is growing not shrinking. We need to work with families earlier in cycle because the families need to clean up their credit.”
If Zandi is correct, the cycle will begin with a rental experience, and getting a rental market more in line with current demand might so that they can begin to move out on their own would be a welcome development. Responding to fears their might be a bubble emerging in the rental market, Zandi explains that in a typical year, we need 1.5 million new units, while right now we are producing 1 million. “The shortage we have in rental housing only getting worse. The key I think for the next 3 to 5 years is about how do we get more rental housing to meet the need….I don’t think there is a bubble, not yet….The housing shortage for rental will become more significant. Having said that there are some markets that are further along. There may be cases where things are overdone–very regionally specific. Strongly argue is not surplus but a shortage.”