Homeownership rate up, driven by millennials

Millennials buying homes helped push the national homeownership rate higher:

The homeownership rate for Americans under 35 jumped to 36.8 percent in the third quarter, highest in five years, the Census Bureau said Tuesday. The share of millennial homeowners was up sharply, from 36.5 percent in the second quarter and 35.6 percent a year earlier. That’s still below the historically normal 40 percent-plus share for Americans that age.

But the young adults, largely first-time homebuyers, drove the national homeownership rate to 64.4 percent – highest since 2014 – from 64.3 percent the prior quarter…

Skylar Olsen, director of economic research for real estate site Zillow, says the slowing housing market actually has aided millennials who are facing somewhat less competition as they hunt for their first home…

The surge in millennial homeownership is a sign the recent housing slowdown is likely temporary, McLaughlin says. “Because that group is so big, it can help support the U.S. housing market indefinitely,” he says.

Millennials are good for something! Someone has to want to buy all those homes that Baby Boomers will soon make available.

Seriously though, two thoughts based on this data:

  1. Even with this news, expect the increasing ability of millennials to buy homes to lead to steady progress, not huge changes in homeownership (which had reached record low rates).
  2. Even with their economic troubles, millennials would prefer not to rent in the long run and would like to own homes, preferably in the suburbs.

For the housing market to really take off, both millennials and Baby Boomers need to want to and be able to move into homes they want.

 

Chicago neighborhoods lead the way in percentage and absolute numbers of millennials

Chicago continues to be a draw for young adults:

According to U.S. Census population estimates, 73 percent of West Loop residents (6,800 people) are millennials. California-based apartment search website RENTCafe.com analyzed the data, ranking ZIP codes in the country’s 30 largest U.S. cities. And the West Loop — ZIP code 60661 — is home to a higher percentage of people born between 1977 and 1996 than any other in the country, according to their analysis.

But the trendy downtown-adjacent neighborhood doesn’t come close to several other Chicago areas in terms of sheer numbers. Lakeview, Logan Square, Irving Park, Lincoln Park, Chicago Lawn, Pilsen and Lincoln Square — each home to more than 30,000 millennials — all rank among the top 20 ZIP codes in the nation with the largest millennial population, according to RENTCafe.

While the emphasis in the rest of the article is on the excitement in such neighborhoods, I want to hold the data up to two larger trends.

These figures may suggest Chicago continues to draw young adults from throughout the Midwest. From an area roughly from Detroit to Omaha, Minneapolis to St. Louis, Chicago pulls in a lot of residents to the leading city in the middle of the country. This is happening even as the US population continues to shift to the South and West.

Furthermore, these high percentages of millennials may seem out of place considering Chicago’s population loss in recent years. On one hand, the city as a whole is struggling to retain residents. On the other hand, a good number of millennials want to move to and live in Chicago. The long-term trick may be for the city to figure how to keep these millennials in the city even as millennials on the whole might prefer the suburbs later in life.

Even with all of its issues, Chicago is still a desirable place to live, particularly for millennials. These neighborhoods with younger adults could prove very important to helping the city retain its status as a leading global city.

In 1980, 55% of 25-35-year-olds owned homes

This report about the struggle millennials face in purchasing homes include numbers about how many young adults owned homes in the past:

Last year 32.3 percent of young people were homeowners, a slight increase from 2016 when it was 32.2 percent.

That’s still well below the 45 percent in 2005 and the peak of 55 percent in 1980.

While the report goes on to offer reasons why millennials have a hard time purchasing homes (short answer provided: student loans), the trend downward from 1980 is notable.

Or, perhaps we should think about it another way: perhaps 1980 was more unusual. This followed several decades of post-World War II prosperity and was before housing values rose significantly in many places. There was plenty of inequality but homeownership was within the reach of just over half of people just starting adult lives. Will we ever reach those levels again?

Whether tech companies and their workers actually do better in and prefer cities

A recent Chicago Tribune article echoed a theme I have now seen numerous times: companies must have downtown campuses to compete for tech workers.

To lure data scientists and other tech workers, companies in industries from fast food to insurance have opened outposts in the heart of the city, where tech employees want to work. Having hip, downtown spaces has proved worth the extra cost to suburban companies, even as rents have increased…

When suburban companies first started catching on to millennials’ desire to live and work in the city, managers had a new culture to learn, Reaumond said. Employees in the downtown innovation hubs didn’t want to be chained to desks 10 hours a day…

Tech-focused downtown spaces feel different than their suburban counterparts, and that’s how it should be, Arity President Gary Hallgren said. Allstate’s Northbrook campus has a barber, a pharmacy and a doctor, but the Merchandise Mart space isn’t trying to be a campus, Hallgren said. Its goals and culture are different, and the space is too. Arity’s office has a pingpong table and the same fizzy water dispenser featured in the HBO show “Silicon Valley.” It hosts meetups that draw tech workers from outside the company.

The underlying premise in these articles is that tech workers prefer to be in urban settings. However, I do not believe I have seen much data that measures this claim. When Americans as a whole are asked where they prefer to live, they tend to say either small towns or suburbs.

If tech workers do tend to prefer urban settings, is this due to the work itself actually going better in cities (higher productivity, more innovation, more efficiency, etc.) or other factors? For example, these stories often do not distinguish between the work activities of these firms and the age (younger) and generation (millennials) of the featured tech workers. Will the tech workers of today be the suburban parents of ten years from now? There is evidence that cities are innovation centers (see the scaling effects of patent production chronicled in Geoffrey West’s Scale) yet tech innovation is possible in the suburban office park (see the Route 128 area outside Boston, Silicon Valley around San Jose, and Bell Labs research centers in suburbia after World War Two).

And while this is often pitted as an either/or issue – tech firms must be in the big cities or must be elsewhere – I suspect there could be some benefits to each as well as some mixing of locations.

Using comic strips to sell the suburbs to millennials

A suburb south of Chicago has a new marketing campaign intended to attract millennial residents:

“Think Homewood” ads, which debuted this month and will run through May, feature three comic strips that focus on affordability, schools, parks, community and creativity. The village, which is about 25 miles south of downtown Chicago, is spending $20,000 on the campaign focused on appealing to millennials…

In those comic panels, two moms stress over registering their kids for schools and park district activities. “I have an alarm set on my phone,” one mom cries when discussing her anxiety about plans to register for a gymnastics class. “If I’m late 30 seconds and miss the window to get a space, I’m so screwed.”

In the other Chicago strip, a dad driving from the grocery store with his wife and toddler shouts, “Frak!” after forgetting avocados for dinner. The couple decide they lack the fortitude to fight traffic and find a parking spot for a return trip to the store. “Goodbye, Taco Night,” an exasperated dad laments.

Those are contrasted with the relatively idyllic “Somewhere in Homewood” strips, where a return to the store for avocados is easy, and the park district has room for another kid in gymnastics even though classes start the next day.

Here is the first strip from ThinkHomewood.com:

https://i1.wp.com/thinkhomewood.com/wp-content/uploads/2018/04/CarCard_Homewood_Strip_1_FINAL-1.jpg

The comic strip seems to hit the right notes regarding one big reason many Americans head for the suburbs: they want a good place to raise a family. Emphasizing safety, lots of green space, good schools, and interesting activities fits into this category.

The strips also highlight a new dimension of suburbs: their growing popularity as cultural and entertainment centers in their own right. While a smaller suburb cannot compete with the restaurant or theater or sports scene in a major city, it can have more cultural amenities. These suburban pockets of fun help move communities past decades-old images of bedroom suburbs where everyone is inside by dinner and nightlife is non-existent. (Of course, most areas in suburbs are relatively quiet places and not every suburb can easily develop a thriving downtown like in Naperville.)

On the downside: many communities have such marketing campaigns. Do they really work? The article goes on to discuss several other Chicago suburbs that have mounted campaigns and the evidence seems thin about whether marketing really attracts people. It is difficult for a smaller suburb to stand out within a region like the Chicago area where there are hundreds of places to live. Would a comic strip be enough to convince people to look in Homewood rather than in dozens of other places?

Finally: do millennials read comic strips like this?

If millennials prefer suburbs, what could lead to suburban decline?

Joel Kotkin argues that millennials would rather live in suburbs than big cities:

It has been often asserted that millennials (defined as the generation born between 1982 and 2002) do not want to buy homes or live in suburbia; Fast Company, saw this as “an evolution of consciousness.” The Guardian declares that millennials are refusing to accept “the economic status quo” while Wall Street looked forward to profiting from the idea that millennials will be satisfied to live within a “rentership society” (PDF)…

Meanwhile, the much mocked suburbs have continued to dominate population trends, including among millennials. As people age, they tend, economist Jed Kolko notes, to move out of core cities to suburban locations. Although younger millennials have tended toward core cities more than previous generations had, the website FiveThirtyEight notes that as they age they actually move to suburban locations at a still higher clip than those their age have in the past. We have already passed, in the words of USC demographer Dowell Myers, “peak millennial,” and are seeing the birth of a new suburban wave (PDF).

To some extent, the meme about millennials and cities never quite fit reality outside of that observed by journalists in media centers like New York, D.C., and San Francisco. More than 80 percent of 25- to 34-year-olds in major metropolitan areas already live in suburbs and exurbs, according to the latest data—a share that is little changed from 2010 or 2000.

Suburban tastes remain predominant with 4 in 5 people under 45 preferring the single-family detached houses most often in suburban locales (PDF). Surveys such as those from the Conference Board and Neilson consistently find that most millennials see suburbs as the ideal place to live in the long run (PDF). According to a recent National Homebuilders Association report, more than 2 in 3 millennials, including most of those living in cities, would prefer a house in the suburbs.

If these trends continue, the suburbs will live on for quite a while in the United States.

This raises a question that I occasionally think about: what exactly would it take for millennials and other Americans to give up on suburbs? A few possibilities:

  1. Significantly higher gas prices. Apparently, getting up to $3-4 a gallon was not enough.
  2. Ecological disasters in the suburbs. Since there isn’t likely something that would affect all suburban areas at once (and not urban or rural areas), perhaps this would involve incidents in a number of major metropolitan areas.
  3. Another burst housing bubble. If housing it not more attractive in suburbs, this might change a lot of minds.
  4. All major employers move to big cities. I’m not sure why they would all do this is a significant number of workers are still in the suburbs but perhaps many employers needing educated workers would moving to cities, leaving suburban residents with low-wage, low-skill jobs.

Even with one of these scenarios, it would take significant time to see the suburbs on the whole decline and wealthier pockets would hold on for quite a while. Overturning the association between the American Dream and suburban life will be hard to reverse.

More evidence of “peak millennial” reached in major American cities

Time suggests 2016 Census data shows a number of American cities have plateaued in terms of millennial residents:

After years of growth, the population of millennials in Boston and Los Angeles has fallen since 2015, with more young people leaving the cities than arriving last year, according to the latest Census data. And millennial growth has slowed in large hubs like Chicago, New York and Washington, D.C.

Dowell Myers, professor of demography at the University of Southern California, first suggested in 2015 that cities would begin to see declines in millennials. With the largest birth group turning 27 this year, Myers says it’s only a matter of time before millennials head to the suburbs for more space.

To see which cities have reached “peak millennial” — a term Myers coined —we analyzed a decade of Census data through 2016. We found that while tech hubs like San Francisco and Seattle are still drawing young people, large East Coast cities, like New York and D.C., are fast approaching peak millennial, with plateauing populations of those born between 1980 and 1996. And then there are cities like Boston, which already appear to have reached their peak. Boston lost roughly 7,000 millennials in 2016, after a record high of 259,000 the previous year…

But they won’t live with roommates forever, Myers says. Eventually, he expects millennials to follow the generations before them and move to the suburbs. “They’re waiting for the recovery to happen,” he says “for new housing and job opportunities open up — so they can move out.”

If this continues, cities will have to think about how to continue to grow their populations. And cities generally do not want any residents; they desire professionals and high-income earners who can contribute to their tax base. But, to some degree they are fighting against demographics as household sizes have shrunk in the United States and birth rates have been steady or declined slightly since 1990. Perhaps their best bet these days is to attract highly-skilled immigrants but this may be an uphill battle as well considering national conversations about immigration, competition between cities, and the significant number of immigrants to the United States that move directly to the suburbs.

Read earlier posts on this topic here and here.