A Forbes article last year called attention to a “new normal” among career-minded members of the Millennial Generation. It noted, shockingly, that more than 90 percent of Millennials in a recent survey said they expected to stay less than three years in any one job. With this in mind, more and more employers, in an effort to attract new talent, are necessarily coming to terms with “job hopping” younger workers. They have, among other things, learned to evaluate fragmented work histories in a more positive light, and many are implementing new benefits, such as schedule flexibility and work from home options, that Millennials say they value—often more than a larger paycheck.
Similarly, communities should be prepared for new levels of “home hopping”—that is, the free-flowing movement, primarily by young people, from home to home (and often community to community) as desire and circumstance dictate. The two phenomena, in fact, go hand in hand in today’s economy. Consider the following: though today’s home prices, combined with record low mortgage interest rates, represent one of the best values ever seen in home ownership, many Millennials remain reluctant or unable to make a long-term investment in housing that will pin them to one location. This is not surprising, given continued weakness in job markets, record-high levels of debt (primarily student loans and credit card debt), and the persistence of extraordinarily tight lending standards that have effectively disenfranchised many younger people from homeownership.
Add to this strength in numbers (the Millennial Generation is larger even than the Baby Boomer Generation was at their age), increasing delays in decisions to marry or have children, and a growing acceptance of the idea that one will change jobs—and potentially relocate—as many as 15 to 20 times over the course of a career, and you have a recipe for unprecedented levels of geographic mobility among members of the Millennial Generation.
A Generation of Renters
The graph below illustrates the dramatic rise in younger householders who rent versus own in the post-housing boom era. In fact, in the years between 2007 and 2011, even as the total U.S. population aged 25-34 began to increase dramatically with the coming of age of the leading edge of the Millennials, the percentage of householders age 25-34 who rent rather than own their homes rose from 53.4 to 60.3. As the graph demonstrates, this tenure shift accelerated after 2007, as the housing boom came abruptly to an end and the national economy sank deeper into recession. The percentage increase may not at first glance seem like much, but to put it into perspective, if tenure ratios had remained unchanged from 2007, we would today have nearly 1.2 million more householders age 25-34 who own their own homes.
But of course these ratios did not remain static. And with momentous shifts towards renting, the rules of the location game have changed. Communities ignore Millennial housing needs—and specifically rental housing needs—at their peril. It is incorrect to assume that if their desired housing is not available, members of the Millennial Generation will simply gravitate to whatever is at hand. Unencumbered by mortgages and ever on the lookout for greener pastures, they are much more inclined to move on, finding more suitable housing in a different neighborhood or city.
A Challenge to Communities; Opportunity for Developers
In an article published last year by NPR, Paul Conway, a former chief of Staff for the Department of Labor and now president of a think tank specializing in Generation Y economics, noted that “The availability — or lack thereof — of quality rental housing will put communities in competition with one another as a more mobile workforce is able to vote with its feet.”
Many communities already go out of their way to create (or at least pitch) services, facilities, and lifestyle amenities that they feel will lure young people to settle within their borders and become vital members of their economic ecosystems. They tout public transportation systems, walkability ratings, pleasant streets and bustling downtowns alive with cafes, boutiques, restaurants, and bars. And yet, while all of these amenities remain important to creating a vibrant environment that acts as a beacon for young households (and their dollars), they are mostly for naught if the same community fails to address its need for housing options that appeal to these same sought-after residents.
Communities need to know where they stand in terms of their housing needs—knowledge that requires careful assessment of housing available for purchase or lease within their borders. In particular, they need to be sensitive to both the quantity and character of the available rental housing. Forward thinking communities who want to make themselves appealing to Millennial households must start with an honest self-assessment and an acknowledgement of those areas in which their current housing stock falls short.
Creating new housing options is easier said than done, of course. Even with widespread industry acknowledgement of the growing ambit and influence of the Millennials and an increasing understanding of their unique needs and desires, many communities who lack sufficient housing for a new generation of post-college renters find it extremely difficult to come from behind in the housing game, as private investment gravitates towards more established markets instead. A partial answer to this challenge can be found in the creative use of public financial incentives and in public-private partnerships to lure development interest and capital. But developers and investors should also recognize the enormous opportunity that awaits, particularly in markets where the development of new apartments has been suppressed for years, creating large pools of latent demand in many communities.
Why is this issue so urgent for communities? If an aging populace is not regenerated with youthful energy and spending, many of those lifestyle and other amenities that make it appealing to younger households will fail or simply fall away. This in turn reinforces negative appeal for the younger generation, and thus a vicious cycle begins, often reaching a point of no return, essentially resulting in the loss of an entire generation (or more) of population renewal, with its broad social and economic benefits.
For developers and communities interested in planning for Millennial Generation renters, contact Residential Planning Partners today.