The Future Generation of Home Buyers
There are as many names for Generation Y — Echo Boomers, Millenials, Generation Next — as opinions about the specific years this generation spans. But it’s not the names or the exact years that matter. What matters is that Generation Y, which trumps the baby boomers in size, is about to become a force in the housing market.
Just don’t expect Generation Y to follow in anybody’s footsteps.
“Especially now, Generation Y is paying more careful attention to whether buying a home is a good idea and, if so, where to buy,” says Arthur C. Nelson, presidential professor and director of the Metropolitan Research Center at the University of Utah.
Generation Y’s attitude is more than a response to vanishing equity, rising foreclosures and tight credit. It also reflects a different set of priorities than the ones that led baby boomers to gravitate to farther and farther away suburbs.
In survey after survey, today’s 20-somethings — the leading edge of Generation Y — express a strong desire to live in urban environments close to jobs, entertainment and each other — at least until they start having children but perhaps beyond.
“They don’t care about having a large home in the middle of nowhere,” says Rosie Derryberry, a 29-year-old agent with Realty Executives in Scottsdale, Ariz. “They would rather have something smaller and more manageable in order to be in the heart of the city.”
With a taste for urban living as well as an appetite for public transportation and a strong green streak, Generation Y could very well be the first “smart growth generation,” says John McIlwain, senior resident fellow and J. Ronald Terwilliger chair for housing at the Urban Land Institute (ULI).
One thing’s for sure. When it comes to the world around them, Generation Y doesn’t miss much. “The Gen Ys have a lot more information than I had as a [young person],”Nelson says. “They are more attuned to their options and more capable of evaluating their options [through] social media, the Internet, different kinds of networking among friends. It’s really quite remarkable.”
Certainly the transformation of many city centers from decaying to desirable hasn’t escaped Generation Y. And neither has the fact that homes in city centers and inner suburbs have held their value far better than those in outer suburbs. By looking for homes close in, they’re gaining “peace of mind as well as quality of life,” says Derryberry. “It kind of goes hand in hand.”
The two most important things to remember about most Gen Ys are that they abhor homogeneity — think cookie-cutter suburbs — and refuse to waste time with long commutes, says Shyam Kannan, vice president at RCLCO, a leading real estate advisory firm. That’s why they’re drawn to neighborhoods in city centers and inner suburbs. “They’re convenient. They have a sense of community. And they have a sense of character,” Kannan says.
Who is Generation Y? Ask a different demographer and you’ll get a different answer. In broad terms, it’s the second generation — the first was Generation X — to follow the baby boomers. While most everyone agrees on who’s a baby boomer — anyone born between 1946-64 — the boundaries of Generation X and Generation Y can be blurry. “There is no precise definition,” McIlwain says.
A Population Research Bureau report defines Generation X as people born from 1965-1982 and Generation Y as people born from 1983-2001. That would make Generation Y’s oldest members 27 and its youngest members 9.
Not everyone agrees. Some draw the line between Gen X and Gen Y in the late 1970s and close the curtain on Gen Y before 2000, but the report’s author, Elwood Carlson, believes those timeframes are too compressed to provide an apples-to-apples comparison with previous generations. Another reason to separate Generation X from Generation Y is the early 1980s: that’s when the birth rate resumed climbing and when a defining economic and political reset of American society began, Carlson says.
Carlson, the Charles B. Nam professor in sociology of population at Florida State University, calculates that Generation Y totals 91 million compared to 79.4 million for the baby boomers and 74.2 million for Generation X. However, the numbers all depend on when you catch them in their lives.
If you measure generations at their birth, Carlson explains, you include those who die as infants and young children (as much as one-fifth of early 20th century generations), but miss all the people who immigrate into the country as part of one generation or another (such as those who continue to inflate Generation X, which started out much smaller).
Carlson took a snapshot of each birth cohort from each generation at age 30 — i.e. the birth cohort of 1979 contained so many 30-year-olds in 2009 and the birth cohort of 1980 will contain so many in 2010, etc. Why measure 30-year-olds? It’s an age when people are settling into careers, buying homes and raising families— all significant socio-economic drivers.
Carlson calls Generation Y the New Boomers. The name captures two key characteristics of Generation Y — it contains a large number of new Americans who have immigrated to this country and it brims with the offspring of baby boomers. That one-two punch will make the New Boomers “the demographic center of gravity of American society” through at least the first half of this century, Carlson says.
Now that we know how many there are, what is it that makes New Boomers tick? They think quickly, multitask easily and communicate — i.e. text and tweet — constantly. They value community, welcome diversity and crave a healthy work/life balance. And many of them— whether they’re familiar with the term or not — are looking for the kind of places to live that are consistent with smart growth.
That’s why McIlwain refers to them as the smart growth generation and predicts they will do more to lead the demand for smart growth than any amount of advocacy could ever do. “Regardless of what you or I or anyone else who [supports] smart growth think, the fact is, there is a shift in the market,” McIlwain says. “This is old-fashioned American market capitalism at work.”
Surveys by RCLCO and another real estate advisory firm, the Concord Group, show how strongly Generation Y is in tune with many key strategies of smart growth. The most telling result: 77 percent of the New Boomers surveyed by RCLCO said they plan to live in an urban core, putting them squarely in sync with smart growth’s emphasis on encouraging development where it already exists.
Walkable communities with a mix of uses is another building block of smart growth. Two-thirds of the New Boomers surveyed by RCLCO said that living in a community where they could walk to work, shopping and entertainment is important, and one-third said they would pay more to do it.
Smart growth also encourages compact development. More than half of RCLCO survey respondents said they would trade lot size for proximity to shopping or work. Even among families with children, one-third said they would make that trade-off.
Providing transportation choices is yet one more smart growth principle that New Boomers like. In the Concord Group Survey, 81 percent said it was very or some- what important to live near alternative modes of transit such as bus and rail lines and 67 percent said they would pay a premium to do it.
Generation Y’s affinity with smart growth flows at least partially from being the first generation born with an awareness of the pressure that development as usual— i.e. auto-dependent suburban sprawl — puts on the environment. More than half of the RCLCO survey respondents said that having a home and community designed to meet certain green objectives plays an important role in their housing decisions.
“The environmental movement didn’t begin until the late 1960s so [baby boomers] had to learn it,” McIlwain says. “Generation Y has grown up with it.” Another influence on their thinking: the knowledge that the days of affordable and plentiful oil supplies are dwindling. “They are extremely aware that energy prices are going up,” he says.
The Martin Prosperity Institute, a think tank affiliated with the University of Toronto, compiled a list of best places to live for young singles ages 20-29 — a giant subset of Generation Y. College towns and big cities dominated the list led by Boulder; San Francisco; Washington, D.C.; Madison, Wis.; and Boston.
Unfortunately for Generation Y, retiring baby boomers have also become interested in urban living after a lifetime in the suburbs. “In a sense, we’ll have a competition for [the same housing] between the aging population and Gen Y,” Nelson says.
Because most are not earning a lot right now, that spells trouble for New Boomers in the form of higher prices as the supply of urban housing is not keeping up with demand. “Most communities are trying to figure out how to implement development like that, but there’s not enough going on to meet the demand,” McIlwain says.
In a report for the ULI titled “Housing in America: The Next Decade,” McIlwain writes that many Gen Ys are deferring home ownership out of both necessity — because they can’t afford to buy in the urban neighborhoods they desire — and by choice — because they see people upside down with their mortgages and realize that a house can be a trap.
That scenario is unfolding in Dallas, where the rental market in popular urban neighborhoods is “rocking,” says Rogers Healy, the 30-year-old broker owner of Rogers Healy and Associates Residential Real Estate. “No one wants to give up their life savings just to buy a condo.”
RCLCO predicts Generation Y’s transition from renters to buyers will start to accelerate in 2012. Yet many will remain unable to afford buying in urban neighborhoods and be forced to consider less expensive outer suburbs — a big change from the past when people moved there by choice to find newer and bigger homes, McIlwain explained.
There is, however, a smart growth solution. “This provides a major opportunity for developers to create new outer-edge communities with real town centers and urban amenities,” McIlwain says. “Even on the outer edges a compact, walkable lifestyle that is affordable will be attractive ... especially if it has transportation alternatives.”