A Suburban Place to Call Their Own
Members of the millennial generation still want a home in the suburbs.
They don't want the city life forever!
A common misconception in the wake of the Great Recession is that Americans, particularly millennials, hold different preferences regarding homeownership and a desire to live in the suburbs. This stylized argument claims that the declining homeownership rates of recent years is a reflection of an increased desire to rent, particularly in more urban locations. However, this assertion is at odds with recent survey data that indicate that preferences for homeownership and suburban living remain strong.
The goal of homeownership, alongside education and owning your own business, remains a key feature of the American Dream. The homeownership rate, for those under age 35 has fallen from 43.1 percent to 35.8 percent from 2004 to 2014, according to Census data. However, this change reflects constraints on housing opportunity rather than a sea change in preferences.
A 2014 survey by Fannie Mae found that 90 percent of young renters were likely to buy a home at some point in the future. Only 7 percent of younger renters reported that they were likely to always rent a home. Among current renters, the survey found that the top primary reason for renting (22 percent) was flexibility, but 21 percent were renting to prepare financially for homeownership.
And the reason for this ongoing, strong preference for homeownership was the belief that owning a home was the sensible long-run financial choice, protecting against rent increases as well as yielding financial benefits (wealth building). Indeed, 76 percent of younger renters in the Fannie Mae surveyheld this belief, with only 24 percent holding that renting made more financial sense over the long-run. Among homeowners, the view of homeownership as the better financial choice was even more widely held, with 90 percent of young homeowners agreeing.
Other survey data are consistent with these results. For example, a 2013 report from the Demand Institute surveyed 18- to 29-year-olds and found that 75 percent of the respondents held that homeownership is an important long-term goal and 73 percent thought it was an excellent investment.
When it comes to the type of housing, consider data from the National Association of Home Builders most recent "What Home Buyers Really Want" consumer preference survey. Among millennial prospective home buyers, 75 percent reported a desire for a single-family detached home, while 11 percent indicated a preference for a townhome. Only 4 percent wanted to own a multifamily unit.
The data also indicate an ongoing goal of living in the suburbs. Two-thirds of prospective buyers in the survey wanted to reside in a suburban neighborhood, compared to 10 percent wanting to own a home in a central city. Nearly a quarter of residents wanted to be outside large metropolitan areas entirely, preferring rural housing. The 2013 Demand Institute report, examining a slightly younger cohort of both prospective owners and renters, found similar preferences, with 48 percent preferring the suburbs and 38 percent wanting more urban locations.
The question as to why these housing preferences persist is linked, in great part, to those major milestones of marriage and children. Clearly, children require more space, both indoors and outdoors. With respect to millennials, the Demand Institute survey found that 64 percent expected to marry in the next five years and 55 percent expected to have children.
And accounting for children is one reason why homes in the suburbs tend to be larger: They hold more people. Using data from the American Housing Survey, I previously demonstrated that, no surprise, homes in the inner suburbs and exurbs were larger compared to homes in central cities. However, homes in the suburbs tended to have more people living in them (i.e. children) so that on a per capita basis, the amount of square footage of housing was approximately the same – about 800 square feet per person for the suburbs and a similar 767 square feet per person average in central cities.
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The need to add space is reflected in preferences regarding must-have items within homes. For instance, the National Association of Home Builders survey data indicate that the most important elements for prospective millennial homebuyers are connected to space (walk-in closets and separate laundry rooms, scoring 4.9 and 4.8 respectively on a 5 point scale). Open first floors more amenable to socializing also scored highly (presence of a great room at 4.7 on the scale). Overall, almost half of prospective millennial homebuyers wanted more space, having a current average home size of 1,728 square feet and wanting to move to a home with on an average 2,475 square feet.
Energy-efficiency is also an element that younger homebuyers want, and are willing to pay for within reason. The same survey shows younger homebuyers’ second most important set of preferences dealt with energy features. The survey data also found that most prospective younger home-buyers (84 percent) were willing to pay 2 to 3 percent more for an energy-efficient home.
These findings are consistent with remodeling-focused data from the American Institute of Architects.Fourth quarter 2014 survey data illustrated that for remodeling of existing homes, making kitchen space more usable as a focal point of homes is a primary goal of homeowners. As the survey noted, with more homeowners residing for longer periods of time in their homes, there is a growing demand to reshape housing to meet current needs. Energy-efficiency and water conservation were also reported as areas of growing popularity.
Neighborhood matters as well, a key reason that the suburbs retain their popularity among home-buyers. The National Association of Home Builders data indicated that a majority of home-buyers wanted easy access to parks, walking trails, playgrounds and outdoor swimming pools.
So while there most likely has been some change among younger home-buyers in favor of reduced work-related commutes and walkable neighborhoods, the ongoing preferences for owner-occupied housing outside central cities suggests the dominance of single-family homes will continue, along with growth for townhouses. And as first-time buyers re-engage in the housing market going into 2016, builders will respond by building more energy-efficient homes suitable for entry-level housing.
And to be clear, there’s a time to rent and a time to own. Home ownership works best when attained after a household has achieved financial stability and expects to remain in an area for at least a few years. For this reason, allowing developers to provide new rental housing and maintain the existing housing stock is a key priority for ensuring access to affordable housing.
If you are looking to purchase a home in the Lake Country area, I would love to help you find the perfect home!
262-443-2672
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