Why mil­len­ni­als are chill­ing the hous­ing mar­ket

Ma­jor de­ter­rents are hous­ing prices and stu­dent loan debt

The Washington Times Daily - - OPINION - By Peter Morici Peter Morici is an economist and busi­ness pro­fes­sor at the Univer­sity of Mary­land, and a na­tional columnist.

Hol­i­day party sea­son is fast ap­proach­ing and just as doc­tors are but­ton­holed for free ad­vice on all man­ner of ail­ments, economists — es­pe­cially those who write for the news­pa­pers — get cornered about the stock mar­ket and with com­plaints that mil­len­ni­als are re­luc­tant to buy homes and slow­ing the mar­ket. Houses are nei­ther too ex­pen­sive nor a bar­gain. Like most as­sets, it de­pends on what you own. For ex­am­ple, even with the re­cent stock mar­ket swoon, in­vestors hold­ing Ama­zon and Ap­ple over the last five years are a lot bet­ter off than those who put faith in Gen­eral Elec­tric and IBM.

Av­er­age na­tional home prices are up about 10 per­cent from their pre-fi­nan­cial cri­sis peak, and that’s roughly in line with in­fla­tion. How­ever, at­trac­tive neigh­bor­hoods have boomed near the cen­ters of thriv­ing coastal cities and those in­te­rior hot spots like Den­ver and Dal­las that are also hubs for the tech­nol­ogy, fi­nan­cial ser­vices and oil and gas in­dus­tries.

Mil­len­ni­als grav­i­tate to those lo­cales for jobs and cul­tural ameni­ties. It’s a lot eas­ier to leave work at 6 p.m,, af­ford the tick­ets to see a Knicks game at Madi­son Square Gar­den and be up for work the next day liv­ing in Flat Iron in Man­hat­tan than far out Com­mack on Long Is­land.

Mil­len­ni­als in those places find homes too pricey — es­pe­cially con­sid­er­ing their much larger stu­dent debt than was car­ried by their par­ents — and sim­ply rent. Con­se­quently, the home own­er­ship rate for those ages 25 to 34 is about 19 per­cent lower than when their par­ents were the same age. It’s even lower for those choos­ing to live and work close to city cen­ters.

A lot of the rea­sons of­fered, other than home prices and stu­dent debt loads, are specious. For ex­am­ple, mar­ried folks with chil­dren are more in­clined to buy than rent, but mil­len­ni­als are post­pon­ing mar­riage, chil­dren and home own­er­ship for com­mon rea­sons.

A young sin­gle per­son earn­ing $60,000, net­ting $40,000 af­ter taxes and car­ry­ing a $60,000 stu­dent loan is a less at­trac­tive partner for mar­riage and less able to af­ford a first child than one who is debt free — es­pe­cially in big cities where child care is so steep. And they are equally hand­i­capped in the hous­ing mar­ket.

The hous­ing boom of the post-World War II era was based on cheap land and trans­porta­tion, and tol­er­ance to drive. Most of the in­ex­pen­sive un­de­vel­oped land close to ur­ban cen­ters is long gone and prices for starter homes fur­ther away are de­cep­tively low.

Gaso­line may be in­ex­pen­sive these days but driv­ing 60 miles round trip in­stead of 30 is not. And Detroit au­tomak­ers and their for­eign ri­vals have pow­ered their fi­nan­cial re­bound by load­ing cars with hot new fea­tures, push­ing big­ger ve­hi­cles and jack­ing up prices.

Three-hour com­mutes re­quire longer, more ex­pen­sive stays at day care and af­ter-school sit­ters for younger chil­dren, and leav­ing teenagers un­su­per­vised un­til 7 p.m. And more reliance on handy­men, house clean­ers and lawn ser­vices as time for do-it-your­self be­comes ter­ri­bly scarce.

Homes a bit closer to cen­ter cities built in the closing decades of the 20th cen­tury are not as sturdy as those built ear­lier. Com­pos­ite sid­ing, win­dows con­structed from mold-sus­cep­ti­ble plan­ta­tion pine and cheap fur­naces of­ten con­front new buy­ers with big re­place­ment bills dur­ing early years of own­er­ship.

Far out starter homes, some­what closer-in but not-sow­ell-built struc­tures and res­i­dences more prox­i­mate to jobs but in poor school dis­tricts may carry more af­ford­able sticker prices but won’t be ap­pre­ci­at­ing a whole lot.

The log­i­cal so­lu­tion is to in­crease hous­ing den­sity near city cen­ters — even places like New York have neigh­bor­hoods with sub­stan­tial yards and space for in­fill de­vel­op­ment and ar­eas that could be cleared for high­rise con­do­mini­ums. How­ever, over the last two decades, baby boomers have per­suaded city of­fi­cials to throw up tougher land-use rules and build­ing codes that limit de­vel­op­ment.

Mil­len­ni­als are more skit­tish than were their par­ents about tak­ing the plunge — mar­riage, kids, houses — but that’s a ra­tio­nal re­sponse to land scarcity and child­hood ex­pe­ri­ences. They are old enough to re­mem­ber the fi­nan­cial cri­sis, ane­mic re­cov­ery, and par­ents or friends los­ing jobs and homes.

For them rent­ing is a hedge. Per­haps not the best choice — home­own­er­ship in de­sir­able neigh­bor­hoods is still the best way for or­di­nary folks to build wealth — but un­der­stand­able if not the op­ti­mal so­lu­tion.

IL­LUS­TRA­TION BY GREG GROESCH

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.