The High Cost of a Home Is Turning American Millennials
Into the New Serfs
by Joel Kotkin
American greatness was long premised on the common assumption was that each generation
would do better than previous one. That is being undermined for the emerging millennial
generation.
The problems facing millennials include an economy where job growth has been largely in
service and part-time employment, producing lower incomes; the Census bureau estimates
they earn, even with a full-time job, $2,000 less in real dollars than the same age group
made in 1980. More millennials, notes a recent White House report, face far longer period
of unemployment and suffer low rates of labor participation. More than 20 percent of
people 18 to 34 live in poverty, up from 14 percent in 1980.
They are also saddled with ever more college debt, with around half of students borrowing
for their education during the 2013-14 school year, up from around 30 percent in the
mid-1990s. All this at a time when the returns on education seem to be dropping: A
millennial with both a college degree and college debt, according to a recent
analysis of Federal Reserve data, earns about the same as a boomer without a degree did
at the same age.
Downward mobility, for now at least, is increasingly rife. Stanford economist Raj Chatty
finds that someone born in 1940 had a 92 percent chance of earning more than their
parents; a boomer born in 1950 had a 79 percent chance of earning more than their
parents. Those born in 1980, in contrast, have just a 46 percent chance.
Since 2004, homeownership rates for people under 35 have dropped by 21 percent, easily
outpacing the 15 percent fall among those 35 to 44; the boomers’ rate remained largely
unchanged.
In some markets, high rents and weak millennial incomes make it all but impossible to
costs now claim upward of 45 percent of income in Los Angeles, San Francisco, New York,
and Miami, compared to less than 30 percent of income in metropolitan areas like
Dallas-Fort Worth and Houston. The costs of purchasing a house are even more lopsided:
In Los Angeles and the Bay Area, a monthly mortgage takes, on average, close to 40 percent
of income, compared to 15 percent nationally.
Like medieval serfs in pre-industrial Europe, America’s new generation, particularly in its
alpha cities, seems increasingly destined to spend their lives paying off their overlords, and
having little to show for it.
No wonder that rather than strike out on their own, many millennials are simply failing to
launch, with record numbers hunkering down in their parents’ homes. Since 2000, the
numbers of people aged 18 to 34 living at home has shot up by over 5 million.
One common meme, particularly in the mainstream media, has been that millennials don’t
want to buy homes. The new generation, as Fast Company breathlessly reported, is part of
“an evolution of consciousness.” Other suggest the young have embraced “the sharing
economy,” so that owning a home is simply not to their taste. The well-named site
And it’s not just ideologues claiming millennials have evolved out of home ownership. Wall
Street speculators like Blackstone are betting that the young are committed to some new
“rentership society,” with that firm investing $10 billion to scoop up existing small homes
to rent, and even building tracks of homes exclusively for rent.
This isn’t about lifestyle choices. It’s about a system in which the boomers are protecting
their wealth and views at the expense of the rest of us.
But it’s not a lifestyle choice but economics—high prices and low incomes — that are keeping
millennials from buying homes. In survey after survey the clear majority of millennials—roughly
80 percent, including the vast majority of renters – express interest in acquiring a home
of their own. Nor are they allergic, as many suggest, to the idea of raising a family, albeit
often at a later age, long a major motivation for home ownership. Roughly 80 percent of
millennials say they plan to get married, and most of them are planning to have children.
Overall, more than 80 percent of millennials already live in suburbs and exurbs, and they
are, if anything, moving away from the dense, expensive cities. Since 2010 millennial
population trends rank New York, Chicago, Washington, and Portland in the bottom half of
major metropolitan areas while the young head out to less expensive, highly suburbanized
areas such as Orlando, Austin, and San Antonio.
Age will accelerate this process. As economist Jed Kolko notes, as people enter their thirties
they tend to head out of core cities to suburban locations; roughly one in four people in
their mid to late twenties lives in an urban location but by the time those people are in
their early thirties, that number drops precipitously and continues dropping into their
eighties. In fact, younger millennials, notes the website FiveThirtyEight, are moving to
the ’burbs at at a faster clip than previous generations. What’s slowing that trend is
economics. Many can’t afford to move, or to transition into a traditional adulthood.
their mid to late twenties lives in an urban location but by the time those people are in
their early thirties, that number drops precipitously and continues dropping into their
eighties. In fact, younger millennials, notes the website FiveThirtyEight, are moving to
the ’burbs at at a faster clip than previous generations. What’s slowing that trend is
economics. Many can’t afford to move, or to transition into a traditional adulthood.
The millennial housing crisis is reshaping the geography of opportunity. Although millennial
rates of homeownership have dropped nationwide, the most precipitous declines have been
in such metropolitan areas as New York, Miami, San Francisco, Portland, Seattle, and
Los Angeles. In all these areas, public policy has regulatory barriers in the way of suburban
and exurban affordability. It is in these markets where such things as “tiny houses” and
“micro-apartments”—not exactly a boon to people looking to start families—are being touted
as solutions to housing shortages.
Nowhere is this dynamic more evident than in California, where the state government has all
but declared war on single-family homes by banning new peripheral development, driving up
house prices throughout metropolitan areas. Regulatory fees typically add upward of
$50,000, two-and-a-half times the national average; new demands for “zero emissions”
homes promise to boost this by an additional $25,000.
Due largely to such regulatory restraints, overall California housing construction over the
past 10 years has been less than half of that it averaged from 195 to 1989, forcing prices up,
particularly on single-family houses. The state ranks second to the last in middle-income
housing affordability, trailing only Hawaii. It also accounts for 14 of the nation’s 25 least
affordable metropolitan areas.
Home ownership rates in California are among the nation’s lowest, with Los Angeles-Orange
having the lowest rate of the nation’s 75 large metropolitan areas. For every two homebuyers
who come to the state, five families leave, notes the research firm Core Logic.
The irony is that the state’s progressive policies are contributing to a less mobile society
and a potential demographic crisis. For one thing, fewer young people can form
families—Los Angeles-Orange had one of the biggest drops in the child population of any of
the 53 largest metros from 2010 to 2015.
This also has a racial component, as homeownership rates African American and Latino
households—which often lack access to family wealth—have dropped far more precipitously
than those of non-Hispanic Whites or Asians. Hispanics, accounting for 42 percent of
all California millennials, endure homeownership roughly half that seen in other parts of
the country.
This is not the planners’ happy future of density dwelling, transit-riding millennials but a
present of overcrowding, the nation’s highest level of poverty and, inevitably, a continued
drop in fertility in comparison to less regulated, and less costly, states such as Utah, Texas,
and Tennessee that have been among those with the biggest surges in millennial migration.
Once identified with youth, California’s urban areas are now experiencing a significant
decline in both their millennial and Xer populations. By the 2030s, large swaths of the
state—particularly along the coast—could become geriatric belts, with an affluent older
boomer population served by a largely minority servant class. How feudal!
***
Ownership of land has always been a critical component of middle-class wealth and power.
Those celebrating the retreat from homeownership among millennials are embracing the
long-term decline of that middle class, two thirds of whose wealth is in their homes.
The potential decline in ownership also represents a direct assault on future American
prosperity. Jason Furman, who served as chairman of President Obama’s Council of
Economic Advisors, calculated that a single-family home contributes 2.5 times as much to
the national GDP as an apartment unit. Investment in residential properties has dropped to
its lowest share of overall spending since World War II; by some estimates reviving that
would be enough to return America to 4 percent growth.
With so many millennials unable to afford homes, or even to see a path to future ownership,
household formation has been far slower than in the recent past. Rather than a surge of
middle-class buyers, we are seeing the rise of a largely property-less generation whose
members will remain economically marginal into their thirties or forties.
Indeed by 2030, according to a recent Deloitte study, millennials will account for barely
16 percent of the nation’s wealth while home-owning boomers, then entering their
eighties and nineties, will still control a remarkable 45 percent of the nation’s wealth.
Indeed by 2030, according to a recent Deloitte study, millennials will account for barely
16 percent of the nation’s wealth while home-owning boomers, then entering their
eighties and nineties, will still control a remarkable 45 percent of the nation’s wealth.
If this continues, we may have to all but abandon the notion of the United States as a
middle-class nation. Instead of having a new generation that strikes out on their own, we
may be incubating a culture that focuses on such things as the latest iPhone, binge watching
on Netflix, something they do far more than even their Xer counterparts.
Progressives who embrace these developments are abandoning one of the central tenets of
mainstream liberalism. In the past, many traditional liberals embraced the old American
ideal of dispersed land ownership. “A nation of homeowners,” President Franklin D. Roosevelt
believed, “of people who own a real share in their land, is unconquerable.” Homeownership
is not only critical to the economy but provides a critical element of our already fraying
civic society; homeowners not only tend to vote more than renters, but they also volunteer
more and, as Habitat for Humanity suggests, provide a better environment for raising
children.
On the flip side, high housing prices tend to suppress birthrates. Many of the places with
the highest house costs—from Hong Kong to New York, Los Angeles, Boston, and
San Francisco—also have very low birthrates. The four U.S. areas ranked among the bottom
10 in birthrates among the 53 major metropolitan areas in 2015. Over time these can have a
dampening impact on economic growth, as is clearly seen today in places like Japan and much
of Europe, and increasingly here in the U.S.
It’s time for millennials to demand politicians abandon the policies that have enriched the
wealthy and stolen their future. That means removing barriers to lots of new housing in
cities and, crucially, embracing Frank Lloyd Wright’s notion of Broadacre Cities, with
expansive development along the periphery.
These new suburbs, like the Levittowns of the past, could improve people’s lives, while
using new technology and home-based work to make them more environmentally
sustainable. They could, as some suggest, develop the kind of urban amenities, notably
town centers, that may be more important to millennials than earlier generations. One
thing that hasn’t changed is the demand for affordable single-family homes and townhomes.
But the supply is diminishing—those under $200,000 make up barely one out of five new
homes.
There are some reasons for hope. The soon-to-develop tsunami of redundant retail space
will open up millions of square feet for new homes. A move to prefabricated homes,
already common in Europe and Japan, could help reduce costs. Certainly there’s potential
demand at the right price—ones that young people can reasonably aspire to and then build
lives in.
The alternative is to travel back to serfdom and a society sharply divided between a small
owner class and many more permanent rent payers. By then, the American dream will be
reduced to a nostalgic throwback in an increasingly feudalized country.
This article was first published in Daily Beast
