Can We Count on Millennials to Fuel Residential Construction Growth?
Difficulties faced by millennials makes multi-family construction a better bet for growth.
Over the past 50 years, the proportion of young adults who own their own home has fallen from about a third to about a quarter. First-time home buying in general is also down, with only 29 percent of new homes going to first-time buyers this past year, compared to the long-time average of 40 percent. Many have speculated as to the forces behind this shift. Have millennials made a deliberate choice to remain free from mortgage debt and home ownership, or are they simply constrained by current economic circumstances?
A recent report based on a survey from the Demand Institute suggests that millennials do indeed want to own homes, but are delaying their first home purchases for a variety of reasons. After surveying 1,000 American millennials between the ages of 18 and 29, the non-profit Demand Institute found:
- 24 percent already own a home
- 60 percent said that they would eventually own a home
- 16 percent said they could never own a home
- 75 percent believe home ownership is an important long-term goal
- 73 percent believe a home is an excellent investment
Among those who plan to own a home but do not yet see the time is right, there may be social and economic factors at play.
First of all, many millennials see home ownership as a step best taken after or in connection with marriage. Marriage rates have been falling and individuals have been entering their first marriages at older ages, but most millennials remain optimistic that they will get married eventually. Of those surveyed, 30 percent were already married, and 64 percent said they expected to be married within 5 years.
Secondly, and perhaps most importantly, millennials are constrained by a lack of disposable income. They have entered into a very tough job market, with unemployment for individuals aged 20 to 24 hovering around 11 percent throughout 2014, according to data from the Bureau of Labor Statistics. This is almost double the total unemployment rate for all ages which has been closer to 6 percent all year. These figures do not account for the many millennials who may be under-employed, doing work that they are over-qualified for and that does not bring in the salary they had expected upon graduation from college.
Among those millennials who are employed, student loan debt is a crippling burden for many. Currently, there is over $1 trillion in student loans outstanding in this country, with the average debt of an individual under 30 being $21,000 according to the Federal Reserve Bank of New York.
Needless to say every dollar that a millennial owes in student debt reduces their purchasing power for a new home. According to one expert from John Burns Real Estate Consulting, for every $250 per month that a household owes, their purchasing power is reduced by $44,000. Up to 6 million households owe much more than $250 per month in student loans.
The take-away for those in the construction and construction lending industry is that the market for new residential home construction is likely to remain flat so long as the newest generation of buyers remains hampered by a poor economy. However, as these individuals continue to rent, multi-family housing construction will continue to be a stronger sector.