There have been endless articles written on how millennials are changing the demand for housing, but not enough articles have been written on why. Millennials showing a preference for apartments and urban areas has dramatically increased the demand for multi-family units, and developers are racing to meet the demand. According to CoStar analytics, the Northern New Jersey market saw an increase 19% from 3Q18 to 4Q18, under construction units for multi-family. We must take a look at why millennials’ preferences are changing, to analyze if this growth is steady or evolving.
MILLENIALS WATCHED THEIR PARENTS GO THROUGH THE HOUSING CRISIS
The average millennial was 19 years old at the peak of the housing crisis in 2009. Many witnessed their parents stretch their incomes for houses they could not afford and take out second mortgages to pay for college. For millennials, the housing crisis was a part of their entry into adulthood and shaped their ideas and values. Seeing an economy collapse from people chasing the American Dream, drove millennials to question if the traditional American Dream is what they wanted. This resulted in a major cultural shift away from wanting to own a single-family home.
MILLENIALS WATCHED THEIR PARENTS WORK FOR THE SAME COMPANY THEIR ENTIRE LIVES
The days of working for one company your entire life and climbing the ladder is gone. A 2015 Elance Odesk survey found that 52% of millennials believe employee loyalty is overrated. This generation has evolved into the idea of promoting yourself into a new role every two years. A CareerBuilder survey showed that 45% of employees plan to stay with their employer for less than two years. The reluctance for Millennials to stay at a job long-term, makes the idea of owning a home long-term difficult to imagine. Renting is easy: if you cannot pay the rent, you move out. The commitment of owning a house tied to a 30-year mortgage makes it difficult to take risks.
MILLENIALS ARE EARNING THE SAME WITH MORE DEBT
Student loans are outpacing wage growth. According to a study done by the Huffington Post, the typical college student in 1990, graduated with debt equivalent to 28.6 percent of their annual earnings. By 2015, that number had grown to 74.3 percent of earnings. Meanwhile, median wages have stagnated over the years. The financial constraints that student loans put on millennials are debilitating—it also causes a shift in priorities. The average millennial’s lifetime financial goal is to pay off student loans, not enter into more debt with a mortgage.
MILLENIALS WANT MORE EXCITING LIVES BECAUSE OF SOCIAL MEDIA
Perception is reality, need I say more? People in their 20s, 30s, and 40s, want to live a superstar lifestyle and emulate what they see on social media: eating out daily at all the best restaurants, going out to bars after work, and being within walking distance from the chicest new yoga studio. These amenities gravitate millennials to urban areas where there is an endless amount of material to post on Facebook, Instagram, and Twitter.
The shift in millennial preference will not be easily reversed or changed. It is the result of historical and cultural factors that are not going anywhere any time soon. We can expect that new construction starts for multi-family units will continue to increase steadily and that millennials will be lining up to meet the demand.