Members of the Millennial generation are renting more and buying less compared to their parents, fueling a boom in apartment construction. Millennials tend to rent for a couple of reasons, the first being financial.In a recent survey, Millennials say that they are consciously cutting back on 18 areas of discretionary spending. As one example, 79 percent of them are eating out less. Compared to other generations, they are saving less. Only 59 percent of them have a monthly savings plan, while only 57 percent, with an employer-sponsored retirement plan, are taking full advantage of the employer’s matching contribution. Some 76 percent of Millennials feel that their car payments are a stretch, while 78 percent said that their credit card or other debt was burdensome.
Student loan debt contributes to Millennials renting rather than buying. Rising college tuition costs have zoomed past the rate of inflation and growth in income. A year at Sarah Lawrence College now costs $61,236. A December survey by the Institute for College Access & Success’ Project on Student Debt found that the those graduating from college in 2012 did so with an average student loan debt of $29,400. In 1993, that figure was $9,350 and was only borne by half the graduates.
After Millennials graduate they face high unemployment, 15 percent for 16 to 24-year-olds out of school.
“You could have generations that never get in the economic mainstream,” said Ted Beck, president and CEO of the National Endowment for Financial Education. “If you never get into the whole U.S. economic system because you’ve been held back by too much early debt… we could have a lot of people who just never really come anywhere near their potential.”
The 80 million Millennials born after 1980, came of age during the worst economic downturn since the Great Depression. Half of them between the ages 25 to 32 feel that the American Dream is disappearing completely. Millennials may be the first U.S. generation to end up worse off financially than their parents.
Millennial renters’ mobility
Renters have greater housing flexibility than homeowners. Many have to give no more than a month’s notice to pick up and leave to seize a new job opportunity in a distant city. Compare this to the myriad steps it takes to put a home up for sale.
From 2006 through 2011, the number of households headed by 25- to 34-year-olds who were renting increased by more than a million, while home ownership in that group fell by nearly 1.4 million. For the population as a whole, just 65 percent now own their own homes, the lowest in 18 years.
Still, a June survey by Trulia found that 94 percent of renters between the ages 18 and 34 would like to buy a home of their own someday. So what’s the alternative, if they don’t move back home, which many have also done?
Millennial renters spur apartment building boom
New apartments construction makes up the fastest growing segment of the housing market, up 56 percent in 2011, 36 percent in 2012, 25 percent in 2013 and forecast to be 9 percent this year.
Rents increased 3 percent nationwide last year and are projected to rise the same this year Rents in cities favored by Millennials have increased faster and are higher. Rent in San Francisco rose 12.3 percent for an average of $3,350 per month, with rents up more than 10 percent in San Diego and Austin. Due to strict rent stabilization laws, Manhattan rents didn’t rise as much, but now average $3,932 a month.
Due to high demand, the value of apartment buildings has recovered faster compared to other real properties and is now worth 5.8 percent more than before the crash.
MetLife, the largest life insurer in the U.S., recognizes that there is money to be made in the apartment boom. “We would love to do more multifamily and we’ve been very active,” said Robert Merck, the head of the MetLife Real Estate Investors unit, “The demographics look good going forward for multifamily.”
MetLife’s commercial real estate loans climbed 19 percent in 2013 to a record $11.5 billion. It now owns a $1.9 billion share of these properties. MetLife’s real estate investments are nothing new for the insurer. It developed two adjacent Manhattan apartment complexes in the 1940s, Stuyvesant Town and Peter Cooper Village. After owning them for nearly sixty years, the insurer sold them in 2006 for $5.4 billion.