Are the millennials ditching home ownership? In December, the home construction industry reached its post-recession peak, but this time it’s apartments, and not houses, that are driving the recovery. The WSJ reports:
The increase was led by a surge in apartment construction, with starts up 116% for buildings with five or more units. Developers of such buildings, which make up 35% of all new residential construction, anticipate that demand for rental housing will keep growing in coming years.
Single-family home construction is also on the rise, but at an 18.5 growth rate, it’s increasing at a much slower rate than the booming apartment market.
The Atlantic comments on this trend:
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.“I don’t think car-buying for Millennials will ever be what it was for Boomers,” said Sheryl Connelly, head of global consumer trends at Ford.
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.
I’m not sure what to make of these trends. On the one hand, I think anything that involves living more cheaply and less destructively is probably a good thing. On the other, the sort of car-free, high-density lifestyle that is far more green and (can be) more affordable is an exclusively urban phenomenon that likely portends more bad news for the midwest.