Are Millennials the Solution to the Nation’s Housing Crisis?


During his Twitter-fed Town Hall, President Obama admitted that the housing market has proven one of the “most stubborn” pieces of the economic recovery puzzle to try and fix.  The President --- as well the Congress and the building industry --- should  consider a new path to a solution for housing by tapping the potential of the very generation whose votes brought Barack Obama into the White House in the first place.   

The Millennial Generation (born 1982-2003) represents not just the largest generation in American history but the largest potential market for both existing and new housing in the United States. There are over 95 million Millennials and over the next five years the first quarter of this cohort will enter their thirties, an age when people are most likely to buy their first home.

Contrary to what is often written about this generation it is very much interested in owning a home, preferably in the suburbs. Sixty-four percent of Millennials say it is very important for them to have an opportunity to own their own home; twenty percent named it as one of their most important priorities in life, right behind being a good parent and having a successful marriage.

 And, contrary to the usual claims of “new urbanists” (themselves largely members of the older X and Boomer Generations) most Millennials want to live in the suburbs where the current housing crisis is most acute. According to a study by Frank N. Magid Associates, 43 percent of Millennials describe suburbs as their “ideal place to live,” compared to just 31 percent of older generations, most of whom still yearn for the smaller towns and rural settings of an earlier America.  

Most Millennials already live in suburbs and enjoyed growing up in suburban settings surrounded by family and friends that supported them.  A certain portion, of course, enjoy living an urban life while young, but most tell researchers that they want to raise the families many are about to start in the same suburban settings they grew up in.

Furthermore, Americans between the ages of  25 and 34, both Millennials and those on the “cusp” of the generational change from X to Millennial,  represent a greater proportion of the overall population in the South and West than elsewhere. These are the very regions that suffered the most from the collapse of housing prices that stemmed from the mortgage financing scandals of the last few years. Unleashing this potential demand for suburban housing in these hard-hit areas would bring two huge benefits. It would stabilize prices for existing homes while at the same time boosting the prospects for new housing construction.  

The challenge is how to enable the Millennial Generation to achieve its desire to own homes without reigniting the speculation and unsustainable financial leverage that   triggered the Great Recession. Clearly, in the immediate future at least, the current excess of supply in the housing market should mitigate the risk of too much demand chasing too few houses.  As much as they are criticized by the financial industry and its Republican allies, the recently enacted financial regulatory reforms might also provide an additional bulwark against allowing the market to misbehave a second time.

But the biggest factor may be the lessons learned from experience.  Millennials have borne much of the brunt of the Great Recession and tend to be keenly aware about the importance of living within your means.  Wanting a suburban home does not mean, as many urbanists assert, that Millennials want McMansions. Like earlier generations, especially their GI Generation great grandparents, they are likely to be cautious and frugal home-buyers. However, this frugality and caution does not translate into a meek acceptance or desire for a future as apartment renters, as some suggest will be the case.    

In the short run, Millennials will not be able to engineer a turnaround all by themselves; most Millennials can’t afford much beyond the next month’s rent, let alone the down payment on a mortgage. Many are still living with their parents to avoid having to pay rent and the cost of a college education at the same time.

To address this part of the challenge, the federal government needs to do what it did to revive the moribund housing market in the 1930s. The New Deal created today’s commonly accepted 30 year mortgages with a 20 percent down payment by making them a financial instrument that the newly formed Federal Housing Administration would insure. Before that landmark legislation, home mortgages were rarely offered for more than half of the home’s value and normally had to be repaid in no more than five years.

As a result that era’s civic generation (the GI or Greatest Generation) was able to afford single family homes with a surrounding tract of land, an offer returning World War II veterans seized with alacrity. These houses now make up much of the country’s inner suburb housing stock.    Today’s housing crisis requires a similarly radical reinvention of the basic home mortgage to be offered to those buying their first home. Under this proposal the length of the mortgage could be extended up to as many as 50 years, reflecting the increased life expectancies --- and longer working careers --- that most Millennials can expect to enjoy. Since no market for such debt instruments currently exists, it would be up to the federal government to create one through the process of reinsurance, just as it did in 1934.

To further encourage home buying by Millennials, the federal government should also provide incentives to financial institutions to swap out the principle of the Millennials’ student loans in exchange for a new loan, whose principal would be collateralized by the value of the real estate the former student would be acquiring. The student loan would be paid off as part of the mortgage, making Millennials better able to afford a home and freeing up additional discretionary spending that current worries over student debt curtail. Today’s lower housing prices today might make this package both attractive to investors and financially viable.

Many economists today argue against the whole notion of encouraging home ownership by anyone, let alone young Millennials. Some point out that when looked upon strictly as an investment choice, the value of a home rarely appreciates faster than the overall stock market.

This type of analysis, which forms the basis for arguing against any federal policy that would further encourage home ownership, ignores the proven benefits to the nation that derive from home owners committed to the success of their local community.  Voting participation rates among home owners, for instance, traditionally run higher than rates among renters, and neighborhoods of owners tend to be more stable places to raise children. 

More important still is what homeownership means to the nature of a property-owning republic. Survey after survey shows that home ownership remains a central part of the American Dream and a central aspiration, particularly for immigrants and young people. A policy that works against this ideal presents a political risk that any politician should be wary of taking.

To restore this part of the American Dream, and to lift the worry of millions of Americans whose house is worth less than what they owe on their mortgage, the Obama administration must take bold steps to restore a vibrant residential housing market.    President Obama, who built his winning margin in 2008 through an unprecedented mobilization of Millennial voters, is the ideal person to combine a plan for economic recovery efforts with meeting the aspirational goals of most Millennials to own their own home.

To save the housing market, and extend the recovery beyond the financial elites, America will need a new wave of home buyers.  If the President works to tap this resource, he can begin to turn around the “stubborn problem” of the housing market and restore the middle class economy. If he does so, the whole country will soon be tweeting his success.

Morley Winograd and Michael D. Hais are fellows of NDN and the New Policy Institute and co-authors of Millennial Momentum: How a New Generation Is Remaking America to be published in September and Millennial Makeover: MySpace, YouTube, and the Future of American Politics.

Photo by 3Ammo

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Call me skeptical

So, we haven't had enough government interference in the housing market as of late, huh. Housing prices will recover unless the fed starts stepping in and doing the whole "hi, I'm from the federal government and I'm here to help" bit. Filtering will smooth the cracks of the housing market when and if the economy ever recovers.

How will rolling a student loan into a mortgage change the ability of those granting the student loan to collect. Currently, it's extremely difficult to discharge a student loan through bankruptcy. But, if you roll it into a mortgage you can simply walk away from the house and absolve yourself of both debts. I think we need to focus more on the affordability of secondary education (you've seen the cost of college versus the CPI over the last 30 years, haven't you) and leave the issues separate.

No MENTION of "supply"?

I can't believe an essay of this nature could refer to the GI generation being helped to afford homes with subsidised finance, without MENTIONING Levittowns, genuine competition in urban development, and performance oriented urban planning that eliminated, probably for the first time in history, successful rent seeking regarding urban development.

This is what led to solid economic growth in the USA, and no destructive cycles in urban land prices, for 5 decades. Britain still had bubble and bust cycles because they still had rent seekers capturing urban development processes.

Affordability is all about supply. Subsidising credit so a generation of buyers can prop up ridiculous land and house prices, is just a recipe for more disaster. The markets that had affordable housing all along (eg in most US cities outside of California) will recover the fastest now. Cities that continue to stubbornly practice "Smart Growth" will continue to be a drag on the rest of the US economy. Without them, the US would have had no crisis at all, and without them, the rest of the US today would be the world's strongest economy by a wide(r) margin.

Millennial Residential Preferences

Our thanks to those who have commented on our article. We would specifically like to respond to those who commented about our analysis of survey data.

With regard to the Pew survey, we believe our interpretation is correct. It is true that about a third of Millennials do live in urban areas or central cities, a greater percentage than any older generation. However, according to Pew a clear majority of Millennials (54%) live in the suburbs. Millennials live in the suburbs to a much greater extent than Baby Boomers (those 47-65) and members of the Silent Genertion (those 66+) when they were the age that Millennials are now.

With regard to the Magid data, we can certainly understand the confusion. The link contained in the article was to a PowerPoint presentation deck that did not report that specific data. We apologize for that error. However, one of us (Hais) designed that survey. We can assure readers that the results cited are correct. A clear plurality of Millennials (43%) say that suburbs are their "ideal" place to live. This compares with 17% each of Millennials who say that living in a city or a small town or a rural area would be ideal. It is also significantly greater than the 31% of older generations who cite the suburbs as their ideal place to live and a majority of whom would prefer to live in either a small town or a rural area.

If any reader would like specific verification of the Magid findings, please indicate that and we will make arrangements to forward the page from the original survey printout that contained those results.

Not accurate quotes from Pew and Magid reports

Winograd and Heis have not accurately quoted the Pew and Magid reports.

To the claim "...contrary to the usual claims of “new urbanists” (themselves largely members of the older X and Boomer Generations) most Millennials want to live in the suburbs where the current housing crisis is most acute...", the Pew Report compares suburbs to rural areas, not city cores. One cannot infer that this is "contrary" to any "claims of new urbanists." (see page 12.)

Furthermore, the Pew report states "Millennials also are more likely to live today in central cities than are older generations—32% of them do, compared with 23% of the Silent generation." (also on page 12.) No where does Winograd and Heis even offer this assessment.

Finally, the Magid report does not contain the word suburb *anywhere* in its document.

Winograd and Heis either made mistakes or are being dishonest in essentially cherry-picking their data. However, this oversight does not negate their main argument. To their credit, the rest of their article has some profound ideas.

I don't interpret New

I don't interpret New Urbanism to mean advocacy for renting per se. New Urbanism emphasizes renting as a legitimate choice, unlike conventional thinking which basically suggests that only homeownership makes sense (which seems like a simplistic analysis to me). It also emphasizes forms or homeownership that aren't as common in traditional suburbs, like ownership of small-lot detached houses, rowhouses, and multi-family condo units.

You may be right about Millennials stated preferences, although upon clicking your links the websites don't seem to provide support for the claims you have made.

However, since most of us have grown up in the suburbs, and usually have little experience with other urban forms, it's only natural that we would express a preference for what we are familiar with.

If a person has only ever really experienced the color brown and you ask him what his favorite color is, I bet he'll say "brown". Also, since the youngest Millenials are currently 8 years old, I'd say the jury is still out on their housing preferences.

closed eyes

You're right... walking around DC, NYC, Boston, San Fran, Pitt, Chicago you are almost overrun by boomers looking to get to the new restuarant, bar, store, etc. Oh yeah... thats not the case at all.

We Millenials pay horribly high rents in cities b/c we really want to live in the suburbs.... now I understand.