Should We Worry About Millennial Home Ownership Rates in D.C.?
Millennials are purchasing homes at lower rates than Gen X and Baby Boomers.
That’s the news from a recent report conducted by the Urban Institute. Titled “Millennial Homeownership” Why Is It So Low, and How Can We Increase It?”, the report reviewed the most recent home ownership data (from 2015). It found the homeownership rate for Millennials (those born between 1981-1997) was 37%, about 8 percentage points lower than the home ownership rates for Gen X and Baby Boomers when they were 25-34 years old.
The report suggests a number of factors contributing to this decline in homeownership rates. These suggested factors include:
- Lower Marriage Rates: Marriage increases the chances of homeownership by 18%. Millennial marriage rates are significantly lower than they were for previous generations, and the report suggests homeownership rates would be five percentage points higher if Millennials married at the same rate as 25-34 year olds in 1990.
- Demographic Changes: Millennials have more non-white households than Gen X and Baby Boomers. An individual’s parents owning a house increases the chances they, themselves, will become a homeowner, and previous generations of non-white households were significantly less likely to be homeowners than previous generations of white households.
- Lower Childbearing Rates: Having children also increases the chance of homeownership. With Millennials delaying starting families at greater rates than previous generations, the report found if Millennials were having children at similar rates, it would increase homeownership rates by approximately six additional percentage points.
However, the report, follow-up discussions by UrbanTurf, and our own analysis, suggests there are a number of other, simpler, factors which may play an even larger role in lower Millennial homeownership rates.
Additional Factors Related to Lower Millennial Homeownership Rates
There are a number of pure financial factors that are likely impacting Millennial homeownership rates.
The first factor, pointed out by the report, is increased educational debt. The report found that even a 1% increase in educational debt can decrease homeownership rates by .15 percentage points. As UrbanTurf notes, Millennials are more likely to hold a college degree than previous generations, but they are also more likely to hold educational debt. They note that 45.6% of Millennials hold student loan debt— 10% higher than Gen Xers, and 25% higher than Baby Boomers. The average debt carried by a 25 year old has also increased from $4,516 to $10,033 from 2003 – 2015.
The second potential factor is a potential skittishness for homeownership developed by Millennials during the housing crisis. This potential concern is, of course, is a little more challenging to determine than the above hard factors. The report attempted to measure it by looking at homeownership rates for “prime households”— that feature married parents aged 25-34. The report suggests there is “seemingly no reason” why these households wouldn’t purchase a home, and yet their homeownership rates have dropped from 62% (in 1990) and 63.5% (in 2000) to 56% in 2015.
However, these homeownership rates have dropped by significantly less for “prime households” that earn at least six-figures. Prime households earning at least $100,000 only saw 3-4% drops in their homeownership rates from 1990 – 2015. This suggests that while there may remain a bit of a lingering “homeownership hangover” among Millennials who witnessed the housing crisis, the issue may have more to do with a much simpler factor—increased housing prices, and thus decreased home affordability for younger individuals.
Could Higher Housing Prices Be the Cause of Lower Millennial Homeownership?
Interestingly, the report doesn’t discuss increased housing prices as potentially operating as the most significant cause of lower homeownership rates among Millennials. Now, the report does make make note of how “The preference of educated millennials to move to more expensive urban centers has contributed to their lower homeownership rates”. And follow-up discussions have elaborated on this point.
UrbanTurf put together an exploration of how these preferences for urban living may impact Millennial homeownership rates. Their article notes that Millennials want to live in cities with inelastic housing supply, and that the pattern of Millennials moving to the D.C. metro area has mirrored the increase in median home prices in our region. They note that as Millennials have moved out of more suburban areas (such as Loudoun County) home prices immediately decreased, and as Millennials have moved into more urban areas (like D.C. and Arlington County), prices immediate increased.
While it is likely that multiple factors are contributing to lower homeownership rates among Millennials, it is entirely possible that the primary driver of reduced Millennial homeownership rates is simply this: Millennials want to move to cities with limited housing stock, which raises the prices of houses in that city, which makes them less affordable to Millennials (especially Millennials earning less than six-figures).
It is also worth noting that Millennials are not attempting to purchase homes in a vacuum. Millennials are competing with older, more established, and wealthier Gen X and Baby Boomers, who can better afford high-priced homes, better acquire financing to purchase those homes, and who are also demonstrating an increased preference for downtown city living.
While Millennials are currently purchasing homes at lower rates than Gen X or Baby Boomers, it feels premature to suggest that the bulk of Millennials will never purchase homes. As Millennials grow older, wealthier, and more established, they will be better equipped to purchase the kinds of homes they are looking to buy, in the areas they are looking to purchase them.
On our end, as members of the real estate development market, we can assist this process—and help the younger generation purchase their first properties—by simply increasing the supply of homes they are looking to purchase, in the neighborhoods they are looking to live. Contact us today, we’ll discuss how we might profitably work towards this outcome together. Call us at (202) 713-9072, or email us at firstname.lastname@example.org.