Millennials Likely to Continue Dominating Apartment Demographics
As the economy recovers and the bank accounts of young workers swell, some might expect those individuals to put their newfound wealth toward a mortgage. This, however, is not the case. Millennials seem to be avoiding home ownership more than any other generation in recent memory, affecting apartment demographics.
Home ownership among adults ages 35 and younger has sunk to 36.8 percent, according to U.S. Census statistics, 6.3% below the peak of 43.1 percent in 2004. Several factors contribute to this trend.
One of the most frequent reasons cited for not wanting to commit to a mortgage is the burden of student loans. The prominence of student loans has increased for decades, and it is no wonder when looking at tuition rates through the same time frame. Average annual tuition to a private, nonprofit university (before room and board) was $10,273 in 1974-75 (that number is in 2014 dollars). In 2014-15, you would pay $31,231 per year, according to The College Board.
If you are more economically minded and chose a public school, tuition in 1974-75 would have cost you $2,469, compared to $9,139 in 2014-15.
With a three-fold increase in tuition costs in the past 40 years, it is no wonder millennials can’t afford to, or won’t consider taking on, the financial burden of a mortgage.
Income is another factor pushing millennials to rent. Wages are nearly to the level they were in 2007, before the Great Recession. However, the cost of living has since increased. Making $900 in 2015 is a lot different than making $900 in 2007.
The median cost of a house in August 2015 was $292,700, whereas a house in 2007 was $269,633 in 2015 dollars. This doesn’t take into account other monthly expenses and how they have gone up disproportionately to wages.
While home prices are rising, so are effective rents – at an annual national rate of 5.2% in September. In the past, you could afford to rent for a while and save enough money for a substantial down payment; that’s more difficult now. According to Axiometrics’ apartment data, average national rent in September 2008 was $969; September 2015 national rent was $1,245. That is nearly $300 (not adjusted for inflation) that could have been saved but is needed for housing.
Axiometrics forecasts effective rent to increase by almost $150 from 2016-2018. As rent continues to climb and the rate of wage growth continues at a snail’s pace, home ownership for young people will likely remain at a low level. The percentage of income put toward personal savings in 2012 was 3.5%, according to the Bureau of Labor Statistics; it is projected to be 3.2% in the next couple of years. So while incomes may go up, expenses also will climb resulting in a similar inability to save.
A more modern problem seen when saving money is letting your money “trickle away,” according to an article in “Generation X Finance.” Past generations didn’t have Netflix, premium cable, online gaming, Internet or cell phones. Each of these features has multiple levels, and each level up costs more money. Millennials are more likely to want the best cable, cell phone and Internet packages, which all lead to hundreds, if not thousands, more dollars spent annually. When you multiply these numbers over a five-year period, you are talking about several thousand dollars that could have otherwise been used for a down payment.
Other lifestyle changes seen among millennials have to do with family. Millennials have been “putting off marriage or having children or both,” a dynamic reported in several places. This phenomenon has contributed to the lack of home buying. When you buy a house, you are solidifying your presence within a certain geographical region. If you aren’t married and have no children, there are fewer anchors to your location.
And as current millennials age and eventually put down roots, a whole new generation is coming up who will likely follow the same path of connectivity and socialization as the current 20+-year-olds, and they also will be likely to rent. That new generation, known asgeneration C, will live in a world where urbanization will be greater than it is now, according to a report from “Strategy&.” By 2020, populations in G7 countries will be 80% urban, so renting will likely still be a popular choice.
Besides, living in a city is a great experience “before you have a spouse and children,” according to a “Money” magazine article. Millennials weren’t getting married for a long time, so they were living where single life was fun. But as they get married, they often move to the suburbs, or at least out of the urban core. But that new generation will be more than happy to fill their place.
The trends discussed above are positive for those in the rental-housing market. As more people live in apartments for longer, there is an increased demand, and therefore increased financial opportunities, for new and expanding properties in urban areas throughout the nation.