A new study says single family homes in the United States are now decreasing. For the first time since World War II, when suburbs experienced a boom and single family homes became the norm, the United States is experiencing increased levels of urbanization. It is expected that by 2021, over one-fourth of the residential stock of the United States will be in multi-unit (apartments, condominiums, etc) residential buildings.
Not only is the number of single family homes in the United States decreasing, so is their size. Between 1970 and 2010, single family home size increased on average by about 40 percent. The new study suggests that’s all changing rather rapidly. By 2021, the total area of single-family homes in the United States will have shrunk by nearly 4 billion square feet, contracting at a negative compound annual growth rate (CAGR) of 0.2 percent, according to a new report using U.S. Census data.
Although the obvious answer to why single family McMansions are no longer the bread and butter of builders is the economy, it might be something more than that. A story appearing in the September issue of The Atlantic takes one of the deepest dives into something that probably gives many lenders pause — young adults, the next generation of homeowners, may be renting for a while. The homeownership rate among those younger than 35 fell by 12% from 2006 to 2011. And going forward, as more prefer denser locales in downtown areas, buying houses and cars may not become quite the priority it once was.
The obvious answer to why younger adults aren’t buying cars and houses would seem to be, again, the economy. The article suggests it may actually be a shift in social values brought about by mobile technology as much as the economy. As we all look forward to economic recovery and an improved housing market, the question is what such a shift means for the economy in the future. As the article points out:
Half of a typical family’s spending today goes to transportation and housing, according to the latest Consumer Expenditure Survey, released by the Bureau of Labor Statistics. At the height of the housing bubble, residential construction and related activities accounted for more than a quarter of the economy in metro areas like Las Vegas and Orlando. Nationwide, new-car and new-truck purchases hovered near historic highs. But Millennials have turned against both cars and houses in dramatic and historic fashion. Just as car sales have plummeted among their age cohort, the share of young people getting their first mortgage between 2009 and 2011 is half what it was just 10 years ago, according to a Federal Reserve study. Needless to say, the Great Recession is responsible for some of the decline. But it’s highly possible that a perfect storm of economic and demographic factors—from high gas prices, to re-urbanization, to stagnating wages, to new technologies enabling a different kind of consumption—has fundamentally changed the game for Millennials. The largest generation in American history might never spend as lavishly as its parents did—nor on the same things. Since the end of World War II, new cars and suburban houses have powered the world’s largest economy and propelled our most impressive recoveries. Millennials may have lost interest in both.
The article suggests Millennials are more inclined toward a “sharing economy”. Mobile technology means everything from friendships to jobs can be maintained from a distance and this shift in social values translates to young adults favoring access over ownership. For example, young adults are no longer buying up fancy new cars the way previous generations have. Rather, companies like Zipcar, that allow members to essentially rent a car on demand for short trips, are gaining popularity across the country. With that in mind, the article poses interesting questions like:
What if Millennials’ aversion to car-buying isn’t a temporary side effect of the recession, but part of a permanent generational shift in tastes and spending habits? It’s a question that applies not only to cars, but to several other traditional categories of big spending—most notably, housing. And its answer has large implications for the future shape of the economy—and for the speed of recovery. Millennials, of course, are sharing more than transportation: they’re also sharing living quarters, albeit begrudgingly, and with less gee-whiz technology involved. According to Harvard University’s Joint Center for Housing Studies, between 2006 and 2011, the homeownership rate among adults younger than 35 fell by 12 percent, and nearly 2 million more of them—the equivalent of Houston’s population—were living with their parents, as a result of the recession. The ownership society has been overrun by renters and squatters. Nine out of 10 Millennials say they eventually want a place they own, according to a recent Fannie Mae survey. But this generation’s path to homeownership is fraught with obstacles: low pay, low savings, tighter lending standards from banks. Student debt—some $1 trillion in total—stalks many potential buyers as they seek a mortgage (or a car loan). At a minimum, homeownership rates are highly unlikely to soon return to the peaks they hit during the housing bubble. Still, in the next decade, a group of people the size of California’s population—most of them Millennials—will likely come together to form new households. The question is: Where, and in what manner? In some respects, Millennials’ residential aspirations appear to be changing just as significantly as their driving habits—indeed, the two may be related. The old cul-de-sacs of Revolutionary Road and Desperate Housewives have fallen out of favor with Generation Y. Rising instead are both city centers and what some developers call “urban light”—denser suburbs that revolve around a walkable town center. “People are very eager to create a life that blends the best features of the American suburb—schools still being the primary, although not the only, draw—and urbanity,” says Adam Ducker, a managing director at the real-estate consultancy RCLCO. These are places like Culver City, California, and Evanston, Illinois, where residents can stroll among shops and restaurants or hop on public transportation. Such small cities and town centers lend themselves to tighter, smaller housing developments, whether apartments in the middle of town, or small houses a five-minute drive away. An RCLCO survey from 2007 found that 43 percent of Gen‑Yers would prefer to live in a close-in suburb, where both the houses and the need for a car are smaller. Wholly apart from their urban sensibility, townhouses and other small houses are more affordable, all else equal, and developers know that to attract Millennials, they need to cater to tattered bank accounts. “The types of properties young people are buying now are different from what [that age group] bought five years ago,” said Shannon Williams King, the vice chair of strategic planning at the National Association of Realtors. “They are within walking distance of shopping centers. These buyers want bike shares and Zipcar. They like feeling connected.” In short, the future of the house might look a lot like the future of the car: smaller, cheaper, built for a new economy. If the Millennials are not quite a post-driving and post-owning generation, they’ll almost certainly be a less-driving and less-owning generation. That could mean some tough adjustments for the economy over the next several years. In recent decades, the housing industry has usually led us out of recession. When the Federal Reserve lowered interest rates in the midst of the sharp recession of the early 1980s, for instance, a construction boom helped fuel the “Reagan Recovery.” With the housing market moribund, the Federal Reserve has lost a key means of influencing the economy with lower interest rates. The service-led recovery we’ve gotten instead is not nearly as robust. Smaller houses built in dense, mixed-use neighborhoods generally take longer to build than McMansions on green-field sites. And of course, because they require fewer fixtures and furnishings, their construction spurs less economic activity. What’s more, both construction and automaking are solidly blue-collar sectors. They employ millions of middle-class workers, who could be hurt by a transition away from home construction and auto manufacturing. The tech companies that sell personal electronics and provide high-speed Internet connections don’t need as many workers. And the jobs they do create—domestically at least—skew heavily toward the top of the socioeconomic ladder. Yet in the long run, there’s good cause for optimism as well. Nobody is suggesting that the American consumer has bought her last house or car—only that houses and cars may lose some of the outsize importance they’ve had to the economy for the past 10 or 20 years or more. “There are a lot of countries, Germany for example, where homeownership rates are a lot lower than ours, and they have healthy incomes,” said Robert Lerman, an Urban Institute fellow in labor and social policy. Simple arithmetic says that if Americans spend less money on cars and houses, they’ll have more money left over to spend or save—and not all of that will go to electronic gadgets. Education is the “obvious outlet for the money Millennials can spend,” Perry Wong, the director of research at the Milken Institute, told us, noting that if young people invest less in physical things like houses, they’ll have more to invest in themselves. “In the past, housing was the main vehicle for investment, but education is also a vehicle.” In an ideas economy, up-to-date knowledge could be a more nimble and valuable asset than a house. What’s more, the shift away from traditional suburbs toward denser, urban-light living could have major economic-growth implications on its own. Economic research shows that doubling a community’s population density tends to increase productivity by anywhere between 6 percent and 28 percent. Economists have found that more than half of the variation in output per worker across U.S. states can be explained by density. Our wealth, after all, is determined not only by our own skills and talents, but by our ability to access the ideas of those around us; there’s a lot to be gained by increasing the odds that smart people might bump against each other. Ultimately, if the Millennial generation pushes our society toward more sharing and closer living, it may do more than simply change America’s consumption culture; it may put America on firmer economic footing for decades to come.
To read the full article, visit: http://www.theatlantic.com/magazine/archive/2012/09/the-cheapest-generation/309060/2/?single_page=true