Millennials are a unique generation, digital natives who have come of age in an era bookmarked by the 9/11 terrorist attacks and the prolonged economic malaise that followed the financial crisis and the housing crash.
Now, however, six years on, as the Boomers “age out,” the Millennials age in. Today, they are playing an increasingly critical role in an economy continuing its long slow mend. Millennials are no longer Generation Next, but rather Generation Now.
Which makes now the time that a number of myths need to be dispelled, or at least qualified, lest they upend company strategies and government policies unnecessarily. Media reports in recent years suggest that Millennials are going to wreak havoc on the U.S. economy and housing market as they eschew ownership of homes, cars and anything else that does not fit into a backpack. They will all move to the cities and rent, they don’t want to own things, they won’t need cars anyway – and there will be a massive slump in demand because they’re all living in their parents’ basements, anyway? Right? Not quite.
Like most myths, there is some truth here – but only some. Last summer The Demand Institute surveyed over 10,000 U.S. households about their current living situations, moving intentions and home preferences as part of a broader research initiative to understand how U.S. consumers’ housing and community demand would evolve over the next five years. The survey included interviews with more than 1,000 households headed by Millennials – a group we define as those between the ages of 18 and 29.
What did we find?
It is true that there are more college graduates living in their parent’s or parents’ basement than there used to be, and when they do finally begin to make their own way, many will move to the city, and some of them will surely defer buying a house.
That said, insofar as more graduates disappeared down the basement stairs, slowing the recovery, their emergence will trigger the reverse – something closer to a burst rather than a steady trickle of new economic activity. The Demand Institute projects that while today’s 18 to 29 year olds account for just 13.3 million U.S. households (11% of the total), their ranks will swell to nearly 22 million households by 2018 as they breakaway from parents and roommates.
But what of the fact that this group leaves through the front door without much money in their pockets? We imagine it will surprise many to hear that Millennials will spend about $2 trillion on home purchases and rent in the next five years – more on a per person basis than any other age cohort. The fact is, this is the house-buying generation. That they aren’t as flush as previous versions of this age cohort may alter their timeline somewhat, but it won’t utterly transform the basic lifecycle of the typical American.
And as they move, our survey suggests that their choices will be generally continuous with those of previous generations. For instance, while it is true that most Millennials are singles and that marriage rates among young adults have been falling for decades, it is also true that most Millennials plan to be married or have kids or both in the next five years.
Economic and social choices tend to come in clusters, as one decision drives another. Not surprisingly, those seeking to set up a stable family unit want a stable place to live. Again, while our survey showed that most Millennial movers will rent next, more than eight in 10 already own or plan to own their own home someday. Nor has the recent crash in home prices led Millennials to believe home ownership a poor investment. Based on stated aspirations, there is no reason to believe that this generation will be any less likely to own their homes.
Further, when they do rent or buy their next place, they do not plan to downsize. Multifamily demand should remain strong in coming years due to strong demand for rental units, but the single-family home remains the ideal as Millennials seek larger living spaces, not smaller ones.
At this point, the reader will probably be wondering: isn’t the Millennial the quintessential city-dweller? Can this many be looking to buy rather than rent, to marry, to have children, and to seek larger living spaces? Once again, something true of just a part of this cohort has expanded in the public imagination to take in the whole group. The larger part of the cohort is looking to start families and find settled places to live, so this group will be looking for space, safe neighborhoods and decent schools. Throw in affordable as well, and that means they’ll be looking for suburban settings – as the survey figures indeed suggest.
Note that, whether it’s a trip to the grocery, a restaurant, or the shops, many more expect to drive than walk. This is hardly surprising, since those planning to live in the suburbs are going to need transportation. What, then, of the conviction held by many that the great American day of the car is over? After all, town centers are becoming more walkable, ZipCar was snapped up by Avis, and dozens of bike-sharing programs are springing up across the U.S. All that may be true, but for those who live outside large metropolitan areas, a car is as much a necessity as it ever was, and some who live in cities also want or need one – so much so that an overwhelming percentage of Millennial households own a car today, just as they did more than a decade ago.
If there is one thing that might puzzle the reader – as it puzzled us – how can it be that so many features of the life choices of the previous generation will carry through to the current one if, as we read almost incessantly in the newspapers, graduates can’t afford homes because they are carrying more than $1 trillion of student debt. There are several reasons.
First, while student loans will, doubtless, delay ownership for some, higher education still leads to higher income and therefore higher rates of home ownership as graduates enter their thirties. Second, a good portion of those without a college education purchase homes, too. It’s impossible not to sympathize with those who carry a heavy financial burden as they leave college. Even at today’s high numbers, however, there aren’t enough of them to destroy the home-buying landscape, and they themselves know that their long-term earnings prospects are better because of the degree they have obtained.
This is not to say that nothing has changed. Rather, we are undergoing an evolution rather than a revolution. So we don’t expect the upending of the economic order that comes with revolution – but even evolution, as we all know, requires adaptation. What, then, has changed, and what should the response be?
First, we suggested that a number of myths had gained currency precisely because they were true in part. In the near term, more Millennials will rent than the previous generation, and many do live in the city. That means companies in generational-transition businesses must adapt their businesses either by broadening their appeal to take in the Millennials that are doing things differently, or find a way to penetrate the cohort making traditional choices more deeply.
Second, companies should recognize that even those making traditional choices may be making them … untraditionally. The suburbs and areas surrounding large metropolitan areas are going to remain important destinations for young families, but the ideal suburban location for Millennials may not be the same as it was for previous generations. Even those who are moving out of the city continue to experience the pull of the city more than those who have come before them. Communities that can fuse the best of urban living (e.g., convenience and walkability) with the best of suburban living (e.g., good schools and more space) will thrive in the coming decade. Of this, we already see evidence, as described in our recent “A Tale of 2000 Cities” report.
Finally, while we do not see recent economic developments, including rising levels of student debt, fundamentally transforming the American dream, we would be cavalier if we suggested it hasn’t become harder to finance. Coming of age during the Great Recession has left many Millennials at a financial disadvantage. The job market remains soft and credit conditions tight. That means many Millennials are concerned about qualifying for a mortgage – but, rather than giving up on their aspiration, they will seek new ways to close the gap between aspiration and reality. For instance, they’re open to new approaches to home finance, such as the “lease-to-own” model, in which a renter accrues equity and can then purchase the home if he or she desires, and to single-family-home rentals. Creating alternative mechanisms so that all Millennials who aspire to the American dream can achieve it is a significant innovation opportunity in both the business and public sectors.