HOME OWNERSHIP had long been a distant dream for many millennials. But after years of putting off marriage, delaying parenthood and battling student debt, the so-called Generation Rent is at last emerging as a big driver of the housing boom in the rich world.
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Typically defined as those born between 1981 and 1996, millennials make up the largest generation ever in America. As more of them reach their peak buying years, they are becoming a force to be reckoned with in the property market. In America they represent the fastest-growing segment of buyers and have accounted for more than half of all mortgage applications over the past two years. CoreLogic, a research firm, estimates that millennial homebuying was responsible for more than 60% of property-sales growth in 2020. British millennials are now more likely to own their home than to rent. And nearly half of adults aged 25-35 in Canada have bought property.
More millennials will reach the age of 32, the median age for first-time buyers, over the next two years than ever before. If the additional demand is to be satisfied American builders will need to construct as many as 2m houses each year, according to Jefferies, an investment bank. That compares with housing starts of 1.6m in 2021.
But the homebuying frenzy reflects more than millennials simply getting older. Following lockdowns and other sweeping changes to daily life during the pandemic, a growing number of millennials want larger family homes with more dedicated office space for remote work. Those who already own property are trading up for more space. This, in addition to stamp-duty tax cuts, helped push the number of first-time buyers in Britain to its highest level in nearly two decades in 2021. Some have brought forward plans to buy. In America nearly a third of young adults polled by Clever Real Estate, a property firm, said that covid-19 had nudged them into house-hunting earlier than planned.
The millennial push is reshaping property markets. For one thing, millennials are swapping flats for family homes. The vast majority of young buyers in America bought a single-family home in 2021. Many are also leaving cities, or trading expensive areas for cheaper ones. Young adults are less tied to London, says Lucian Cook of Savills, a property firm. The number of millennials in Britain’s smaller cities, such as Manchester, Glasgow, Edinburgh and Bristol, is growing far more quickly than that in the Big Smoke.
Remote work is also opening up more affordable places to live. In America buyers are flocking to sunbelt hotspots, like Phoenix and Tampa. Zillow, a property firm, estimates that a typical renter in San Francisco would have to set aside 2.4% of their income for six or seven years to save enough for a 20% deposit on a starter home in Austin or Phoenix. For a similar property in San Francisco they would have to save for more than 70 years.
Will millennial home ownership continue to power the market? The growing number of millennials entering their buying years will keep momentum going, and flexible work could continue to make cheaper areas more attractive. The question is what happens to affordability. Interest rates in many places are going up: the Federal Reserve expects to raise rates six more times this year. That could cool demand and increase mortgage-servicing costs. Rising interest rates in the 1980s, for instance, depressed housing markets just as baby-boomers reached their peak buying years. The difference now, though, is that rates are low by historical standards and expected to rise only gradually.
Severe constraints on housing supply, however, may mean that affordability remains strained. Shortages of labour and materials will make it harder for builders to put new homes on the market. Record-low inventory and fierce bidding wars could mean fewer homes to choose from. For some millennials, the dream of home ownership may still prove out of reach. ?
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This article appeared in the Finance & economics section of the print edition under the headline “Coming of age”
