The Future of Living Part 2: Millennials by the Numbers
You’ve heard it and I’ve heard it. Millennials are taking over and their generational preferences are pushing the growth of new products and categories on a daily basis. With Millennials surpassing Boomers as the largest living generation last year, the U.S. economy is primed to feel the impact to the tune of a projected $1.4 trillion in Millennial spending power by 2020.
Between Millennial generation homeownership rates being at an all-time low and words like Co-Living, digital nomad and rental marketplaces popping up in the mainstream media more than Erlich Bachman’s name, I’ve started to wonder what’s actually driving Millennial housing behavior and how it will impact real estate in the future. Thus, instead of spewing off random thoughts like I do on twitter (as my followers can attest to), I decided to jump into a rabbit hole of data for Part 2 of the Future of Living Series and here is what I found.
Demographic and Psychographic Drivers and Trends
Many people have recognized the fact that the goals of Millennials have shifted away from the status quo. The 75 Million Millennials have goals that have shifted from job stability to life fulfillment, and the definition of “success” has changed as well.
In 2007 Tim Ferriss published the book The 4 hour work week and it provided the world with immediate insight into how technology has given us the option to get creative with our lifestyles. So, while the “greatest generation” is known for its hard working mentality that was derived by the their upbringing during the great depression, and Boomers have seemingly continued the preference for a climb up the corporate ladder alongside the suburban dream, Millennials preferences today are rapidly driving product changes to the future of living. Here’s what they are:
A Connected Generation
Millennials grew up with technology. Yes we may have started with AIM accounts and dial-up modems, but having technology in our lives since an early age has made us more (or less depending on how you want to look at it) connected with each other than ever before, as well as more comfortable trying new things. 87% of online adults in the US age 18–29 use Facebook and according to the Pew Research Center “a whopping 86% of people aged 18–29 have a smart phone.” With nearly an hour a day spent on Facebook’s mobile app by Millennials, people don’t feel like they’re missing out as much on things at “home,” which makes them feel more comfortable to travel. Millennials also feel like they can acquainted to new locations faster because of technology which in turn alleviates another friction point in moving to new places.
As Micah Solomon noted, “millennials embrace and align themselves with technology” which as a result drives them to try new technologies or hop on trends like freelance marketplaces, ride-sharing or other access economy products.
A Preference to Travel and Experience Things
Millennials are pushing back the start to adulthood. They’re the fastest growing age segment in travel spending ($200 billion/yr.) and they continue to search for more experiences. Data shows that:
- Individuals ages 18–34 years old report a greater desire to travel abroad than other generations by a 23 percent margin
- 78% would rather spend money on an experience than a thing
- 77% say their best memories come from experiences
- 72% of Millennials would like to increase their spending on experiences
- 86% of Millennials would rather experience a new culture
- Employees under 30 are traveling 4.7 times per year on business compared to 3.6 times for those above 30
- Millennials represent 70% of the hostel market spending
Knowing that, it makes sense why the vacation rental market is booming and companies like AirBnB had timed things up perfectly.
The Transient Millennial and A Willingness to Move
After extensively interviewing over 60 millennials, Mic contributor James Wolfensberger noted that our generation is “quick to openly imagine themselves living and working in not just different parts of the country throughout phases of their lives, but in other nations as well.” Between companies becoming more comfortable with remote workforces and access to work becoming easier (more details below), it’s no surprise that the idea of becoming a “transient Millennial” is becoming more and more popular. The infrastructure around housing isn’t set up well to accommodate this groups needs, but companies like Roam, Remote Year and Unsettled have done a good job attacking the market. It’ll be interesting to see how this “digital nomad” movement evolves as the way many define the term today doesn’t really fit the persona of those who continue to join the ever growing population of those jumping around the world.
Getting Married Later
James Wolfensberger also represented the Millennial mindset best when he said “Adulthood and its obligations offer security and stability, but they also represent a closing of doors — the end of independence, the end of spontaneity, the end of a sense of wide-open possibilities.” While marriage doesn’t necessarily make you a complete “adult”, many Millennials are certainly buying into that thought process as shown by the median marriage age in 2010 rising to 30 yrs. old up from 23 yrs. old in the 1970s. According to Goldman Sachs, the percentage of young people married and living on their own has dropped by more than 50% since the 1960s to 23% in 2012. With that said, 70% of Millennials have stated that they eventually want to get married, but it does not appear like they are in a rush. Consequently the housing market is being impacted in various ways.
Access to Work
So far we’ve established that Millennials are getting married later, like to travel more and tend to be early adopters of new technology. Lucky for them a recent survey of business leaders showed that 34% believe that more than half their workforce will be remote by 2020. Combine that data point with the exponentially increasing ease of finding freelance work via one of the many online marketplaces (Catalant, Upwork, etc.) and you can understand why Millennials have more confidence to travel and experience some of the things that they otherwise would not be able to if working a traditional 9 to 5.
38% of millennials are freelancing today vs. 32% of the rest of the population. With analysts projecting 40% of the U.S. workforce being independent workers by 2020 lots of new products are going to be created to cater to their needs and having a roof over their heads is priority number 1.
Company loyalty, or a lack thereof
Unlike our parents we’re not staying at the same company to climb to corporate ladder. According to State Street Global advisors 60% of millennials ages 22–32 have changed jobs between one and four times in the last five years. Additionally, an Indeed.com survey pointed out that 44% of millennials would leave their current employer in the next two years if given the choice. Well, it seems like the choices for earning a living are becoming bountiful, which is going to drive more relocations and travel within the millennial generation.
The Urbanization Movement
Aside from the qualitative data (aka the number of cranes I see in Manhattan putting up new residential high rises), the Wall Street Journal once reported that 88% of Millennials desire to live in an urban setting and that one third of the generation is willing to pay more because of it. Moreover, the declining sales of vehicles to people ages 21 to 34 (down 11% over last 30 years) represents another one of the many signs that Millennials prefer cities over the suburbs. This shift in consumer demand is going to have an impact on the housing market over the next 5–10 years as the current supply of housing doesn’t fulfill Millennial needs.
While Millennials may have different preferences in regards to work and travel versus their senior counterparts, it’s not only those things that are driving the future of the housing. Although mortgage rates are near historical lows, it appears that a perfect storm of other economic and personal factors are what’s driving the lowest recorded homeownership rates for those under 35 in our nations history. Here’s what they are:
More than 50% of the Millennial generation have attended college to some extent and that choice has produced more than $1 trillion in student debt. While many enjoyed the college lifestyle and educational components, in hindsight 57% of Millennials now regret how much they borrowed as the average student is now receiving their diploma with $30,000 in loans and $312/mo. in loan payments. Average income aside, $312 in loan payments a month doesn’t make buying a house any easier for those that need to save for a downpayment...Which on average is much higher in urban areas by the way.
Since 1990, the median home price has gone up roughly $40,000, while the median American income has only risen $2,000. According to this Atlantic article, the median income of a 29 year old in the U.S. today is about $35,000. When you take into account that 20% is needed for a downpayment, that means that the average downpayment has increased by $8,000. $8K represents ~23% of someone’s salary and when combined with ~$3,750 of student payments a year one can understand why Millennials are not buying homes quite yet.
High Median Home Prices
9 out of 10 Millennials say that they eventually want to own a place, but with the average place in cities (where Millennials prefer to live) costing more than the suburbs and the new home price median being $306,700 the “american dream” is starting to feel more difficult to achieve. Unless Millennials have stashed away $60K+ (which they haven’t as noted below) then they’ll need to hangout in the renters market for a bit…which is also quite unaffordable right now because of increasing demand.
Did you know that 50% of Millennials have a net worth of less than $10,400?! Remember those down payments I talked about? Even though Millennials have set goals to save more, they’re struggling to decide between their spend on experiences, preference for the urban living and the student debt that is drowning them. While Millennials have increased savings from 5.8% of their income in 2013 to 7.5% this year, Gen X and Boomers are saving larger portions and are 12 points above us in terms of retirement preparedness.
Tighter Lending Standards
We’re all familiar with what went down in 2008–09 and if you’re not then I highly recommend watching the movie The Big Short. Since then we’ve seen a tightening of mortgage standards. Thus, Millennials shouldn’t expect the same leniency that was awarded to people in the mid two thousands. Moral of the story is bring 20% to the table with a solid debt to income ratio and be realistic about what is affordable, otherwise it’s not worth your time.
After uncovering more sources for this piece than most of my college papers, I’ve come to the conclusion that it’s highly possible that a perfect storm of economic and demographic factors are playing a role in the future of living. Re-urbanization, liberal travel preferences, stagnating wages, new technologies enabling a different kind of consumption and difficult economic conditions are all fundamentally changing the game in Real Estate because Millennials are forcing it to do so.
As a result, I believe we’re going to see new rental products, new categories of housing, new marketplaces, new financial instruments and new brands being created to serve the needs/preferences of Millennials in an industry that is known for its old school ways. In the next Future of Living piece I’ll be taking a deep dive into all the new players in the market with the help of Weston Reynolds over at Greycroft and Dave Ambrose at Steadfast. Excited to dig in with these guys and publish the post in September.
Until then, let me know your thoughts. You can find me on twitter @BoatShuman. Look forward to discussing.