The Future of Home Ownership Isn’t Going to Be Millennials

Many parts of commercial real estate have been stars in a dull pandemic economic firmament. But what will the future bring/? For companies involved in building and selling single-family homes, condos, and coops, given the significant housing gap that exists, the future might seem even brighter.

But to make money on homes, there needs to be buyers. Millennials, ranging from 25-year-olds to 40, should be the current and growing wave. But a three-part study based on surveys from the U.K.-based financial services firm Legal & General suggest otherwise. 

The first part laid out a basic theme that home ownership for millennials was “a distant dream for most.” About 56 percent of the 875 surveyed US  millennials who don’t currently own a home say that housing in their area is either hard or extremely hard to afford. The number rises to 70% for those living in large metropolitan areas. A little more than a third would move to a smaller town if it were more affordable. Nearly two-thirds find cities unaffordable.

The costs are high in renting as well, making it harder for people to save for a down payment large enough to make a mortgage affordable for them.

Things were bad enough, but Covid made them worse. The second part of the study noted that 47% of millennials pointed to the pandemic as a factor that negatively affected their home-buying plans. Thirty-six percent of millennial parents and those who had been saving for a home are looking to move to smaller, more affordable places—the type of homes that experts say are less likely under construction now. The situation was so bad that 12% completely abandoned plans to own a home, while 61% already saving for a home said that Covid caused them to either cancel or delay their plans.

At this point, more than half of millennials aren’t even trying to save for a down payment, according to the third segment of the study. As big an issue as the pandemic and affordability in the general housing market is income. Survey subjects often pointed to wage stagnation and lack of jobs that pay a “living wage.”

“In real terms, wages aren’t keeping up with everyday costs, and as we’ll soon see, rising home prices are by far outstripping wage increases,” says the report. Nearly half of the millennials in age brackets approaching prime earning ages make less than $50,000 a year.

Housing ownership has been a hot market largely because of low supply and high demand among those who could afford to buy. But the study’s results suggest that there could be a crunch in the future. And in a brief preview of an upcoming fourth part, the researchers mention “intergenerational ‘housing wars’ that some millennials say are freezing their generation out of the affordable home market.”

There seems to be a clear danger in the future. Unless prices come down, combined with much higher rates of housing creation and possibly greater geographic distribution to help cool expenses, the market might find not enough buyers, which would trigger a drop in prices but of structures built at higher costs with the expectation of greater returns on investment.