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Millennials Can Afford Homes. Just Not Where They Want to Be.

April 26, 2016

Jeff Speck’s book Walkable City: How Downtown Can Save America, One Step at a Time is changing the way many Americans view their built environment, with hard-to-believe statistics like this: since the 1990s, the share of automobile miles driven by Americans in their 20s has dropped from 20.8 percent to 13.7 percent.

While studies consistently find that Millennials favor homeownership at an overwhelming rate, Millennials favor non–car-centric, mixed-use communities as well at a similar rate; 61 percent according To Nielson. Yet in 2015, suburban counties outpaced urban counties in growth, as they have for 14 of the past 15 years.

So what’s going on?

As Jed Kolko of the Terner Center for Housing Innovation at the University of California Berkeley explains, “Rich, young people are outbidding others for urban housing and so the faster growth in the suburbs certainly reflects tight housing supply in dense neighborhoods.”  

As a result, many moderate-income Millennials looking to buy a home are left with two choices. First, there is the urban home in a more affordable neighborhood. Here they can walk to the coffee shop and bike to work but also probably deal with intimidating crime rates and subpar school districts, or both. The second option is the traditional suburb, with strip malls and chain restaurants but also low crime and excellent school districts. Many are choosing neither, preferring to rent in the neighborhoods where they dream of owning houses.

Nothing proves this like Bloomberg’s 2015 study. It found that in 37 of the 50 largest metro areas, the median income of residents aged 18–34 actually exceeded the minimum salary required to purchase a home.

But when the New York City metro area was specifically examined, a much different story unfolded. In the entire tristate area, Millennials’ incomes trailed the salary required to buy a home by a modest $6,550, but in the three counties where 80 percent of Millennials live, the affordability gap ballooned to $52,262! While New York City may have some exceptional home prices, this trend spreads to major markets throughout the country. Prices rose in 81 percent of metro areas in the fourth quarter of 2015 year-over-year, according to data from the National Association of Realtors.

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Other data shows that not all Millennials are kicking the can down the road because of prices. Rather, the reason they aren’t buying is that they are products of the 21st century’s later marriage ages and longer life expectancies. This is seen in Washington, DC, whereThe Washington Post has reported that while Millennials moving into the city far outstrip those moving out, older Millennials aged 30–34 are moving out of the city at a pace slightly higher than those moving in.

These are the people of the early family age, forced to choose strip malls and school districts over coffee shops and biking to work. Not all of these people become homeowners where they want to, but they are becoming homeowners nonetheless. “Until you have kids, you don’t need the suburbs, because you don’t need the schools,” says Joseph Gyourko, real estate professor at the Wharton School of the University of Pennsylvania.  

They say that the three biggest factors in real estate are location, location, and location. It is really location, affordability, and location. If builders can find ways to increase supply in walkable urban neighborhoods, Millennials may find a new zeal for homeownership faster than many think.

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