Oct 23, 2012
Housing and the next generation: Why you should be paying attention
23 Oct 2012
Posted by Andrew Kantor
James Madison University is getting Zipcars — cars you can rent by the day or by the hour. Need to get someplace? Pull out your phone, find the nearest Zipcar, and rent it.
So what? That’s nice for students, but what does it have to do with real estate? More than you might realize.
Search on the phrase “Generation Rent.” Young people aren’t rushing to buy the things their parents did — cars, houses, even bicycles. They’re choosing the flexibility and mobility of renting instead, and the arrival of Zipcars at JMU is just another example.
This trend is mostly by necessity, somewhat by choice. And it’s entirely worth keeping an eye on.
The necessity: A trillion bucks worth of student debt. About 59 percent of Virginia college graduates have significant debt — an average of $24,717. Here’s a sampling:
- Liberty Univ: $36,014 average debt on graduation
- Randolph-Macon College: $32,694
- Roanoke College: $34,645
- UVa: $20,951
- Virginia Tech: $24,320
- VCU: $27,179
It’s called “crushing debt” for a reason; it’s hard to get your sea legs when you start out 20 or 30 grand in the hole. Considering the dearth of good-paying jobs for recent grads, they’re looking at putting a significant portion of their income toward paying for school. Buying a house? Ha! Result: Rental vacancies are at their lowest level in a decade, says NAR.
Why shouldn’t we be cautious? Young adults are facing an unemployment rate that’s been above 8 percent since 2009. The median first-job salary has gone down $3,000 since 2007, from $30,000 to $27,000.
Commitment phobia isn’t a fad. For most, it’s an economic reality. Renting isn’t a choice when you can’t afford to buy, or qualify for a loan, or count on being in the same job for more than a few months.
It’s a huge issue, and it’s only getting larger as college costs rise. (Contrast most European countries where post-secondary education is free — they consider it an investment.) As people borrow more and more for school, that’s years’ worth of house payments that are being put off. And you can tout the economic value of home ownership all you want; it doesn’t mean much when you can’t get a loan.
But young folks — Millennials or Generation Rent, whichever you want to call them — are also passing up on buying things in general. There are a lot of reasons for that.
For one, renting is easier, especially when your credit has a big, red “student loan” on it.
Sociologist Katherine Newman told NPR, for example:
“I’m hoping that the Millennial Generation doesn’t set its sights on homeownership as a benchmark of economic stability, because it’s going to be out of reach for so many of them that it will just be a recipe for frustration.
For two, this is a generation that is used to things changing every year. Think about the mindset of a person who is willing to wait in line for hours for a gadget simply because it has a larger screen or a slightly faster chip than the one they already own. Now (at least if you’re over 40) think about how many times your family got a new phone or television when you were growing up.
We used to talk about “planned obsolescence” — manufacturers designing things that broke and needed replacement regularly. Nowadays they don’t have to. Just announce a new version of something and wait for voluntary obsolescence to take hold.
(Consider reports of the death of the desktop/laptop computer in the face of tablets and smartphones. People aren’t buying new ones, so the demand must be slipping, right? We’re so used to constantly replacing gadgets that it hasn’t occurred to anyone that maybe computer sales are slipping not because people don’t need or want PCs anymore, but because people don’t need a new one.)
The point is, change is a way of life for the younger set. No more working at the same factory for 50 years and retiring with a pension; a new job every couple of years is becoming the norm. No more settling down in one spot for the rest of their lives; it won’t be long before “the house I grew up in” is an anachronism.
For three, values have changed. Once upon a time, the car you owned was important — it made a statement about who you were. Bigger, faster, newer, louder… your car defined you in America. Not so much anymore. Young folks are more and more thinking of a car as a utility. Sure they’d love something newer/faster/slicker, but it’s not that important. If they define themselves by any property, it’s their consumer electronics — what phone/tablet/notebook they own.
The other value that have changed is that of the suburb. Young folks prefer something more urban — places within walking (or even biking) distance. The idea of having to drive everywhere is much less appealing and much less social. And in case you hadn’t noticed, social is important these days.
Urban living is less expensive, too, and more environmentally friendly, other things Millennials care about. The dream has changed.
Can we predict how things will change? Will the rental trend continue or will Generation Rent eventually become Generation Finally Settled Down? Can’t say. But what we can say is that right now home ownership is out of the question for many of the people who used to fuel the market. And that’s going to have ripple effects up the line — how severe and for how long is anyone’s guess.