By Reut R. Cohen
“There’s a stereotype that Millennials are lazy,” said Layla Khan, 31, a marketing specialist. “At my age, my parents didn’t have student loans and neither had a job nearly as solid as mine, but they could afford to buy a house. That’s just not likely any more unless your parents can help you financially.”
Khan fits into a large cohort of Millennials that seek to move forward, but they’re slower in accumulating the wealth and incomes of generations in the past, which means they’re living with their parents or with roommates well into their late 20s and even later.
Although economists say the Great Recession is over, economic limitations in major regions have altered what we have come to consider “normal.”
For instance, nuclear households aren’t as prominent as before. A record 60.6 million Americans are living in multigenerational households, according to Census data analyzed by Pew Research Center.
Economists say the great recession is over, but economic limitations in major regions have altered what we have come to consider “normal.”
A Big Issue, But A Neglected One
An analysis of the 2016 presidential debates shows something curious where housing is concerned: the subject barely came up at all. In the rare moments it was mentioned, discussions were centered on trading barbs. Substantive exchanges about housing have been missing.
“People in the median income are spending more than 30 percent of their income on rent [in the U.S.],” Richard Green, the director of the USC Lusk Center for Real Estate, said during a recent panel in Los Angeles. In metropolitan areas, that rate is even higher.
Earlier this year, a Pew Research Center analysis showed that the shrinking of the middle class was occurring at an alarming rate, to a point where it is no longer the U.S. majority. Further, Census data shows, from 2000 to 2014, the share of adults living in middle-income households in U.S. metropolitan areas fell in 203 of the 229 locations examined.
Fight NIMBY With YIMBY
The twin obstacles of supply shortages and affordability are here to stay unless governments do something about them.
In California, the resistance to building units has driven up rents. As rents have risen, so has the ire of much of the public. “A lot of times when we say affordable housing, we mean subsidized housing. But the vast majority of low- and middle-income Americans do not live in subsidized housing,” said Sonja Trauss, founder of the San Francisco Bay Area Renters’ Federation.
Trauss, described as a local leader with a radical view of housing, came onto the scene two years ago and shook up the debate. In January she hired an attorney so that suburbs would be held accountable — through litigation — for not complying with standards to build units.
“There’s no way to accommodate a lot of people in your metropolitan areas without building,” she said.
The twin obstacles of supply shortages and affordability are here to stay unless governments do something about them.
Trauss’ work highlights a trend where people in the middle are often the ones getting stuck paying the highest rents in proportion to their incomes. They make too much to qualify for subsidies and they don’t make enough to rent comfortably without exhausting much of their income. Homeownership is entirely out of the question or a distant dream for them.
Ironically, housing costs have become a threat at a time when borrowing costs are hovering near record lows. Indeed, the 30-year fixed-rate mortgage is at about a 3.6 percent average in 2016. Yet, the homeownership rate is dropping. In California, it’s 54.1 percent.
“Either rents go up or you build more units,” said Christopher Thornberg, founding partner of Beacon Economics, during a recent panel that converged housing experts.
While building more units is just one method to alleviate housing issues, it’s one of the important ways to correct a distorted market where foreign buyers and all-cash purchases reigned supreme following the 2008 housing crash.
Millennials Left Behind
A 2016 survey by the National Association of Realtors found that 71 percent of non-home owners with student debt say their debt is preventing them from purchasing a home.
California home prices are twice the national average. That makes apartments a more accessible option for many young professionals.
Yet Thornberg pointed to a study conducted by Beacon Economics for the USC Lusk Center for Real Estate that projected rent hikes for 2018. In Los Angeles and San Diego counties, the increase is projected to be an additional $109 and $149, respectively. In Orange County, the hike is expected to be as much $149 by 2018. In the Inland Empire, renters will see an $84 hike.
However, rent prices make it harder to save for a home. And California isn’t the only state in the union witnessing massive hikes. It is, however, an example for what happens when government officials resist building.
“I make good money, but student loans and the amount I spend on rent means I’m not saving what I need to,” said Khan. “I pay income tax at the end of the year and pay loans, and feel like I’ll never be able to buy a home on my own. Maybe with a partner, but it’ll be hard.”
71 percent of non-home owners with student debt say their debt is preventing them from purchasing a home.
Data show that 36.4 percent of women ages 18 to 34 resided with family in 2014, either with one or both of their parents, according to the Pew Research Center. It’s a striking trend. The last time this cohort lived with their parents in such large numbers was in the 1940s. And it isn’t just women. The same survey showed that even more men, 42.8 percent lived with their parents. Statistically speaking, it’s a return to the past. But, for the most part, it’s out of necessity, not social mores.
“I would say I spend about a third of my salary on rent,” said Brian Brooks, 29, an information technology specialist who considers himself lucky in that he’ll one day inherit a home. “Right now, my money is going to other things, like student loans and car payments. I graduated right when the Great Recession hit,” he explained.
Brooks, who graduated from Pepperdine University with degrees in history and philosophy, found it nearly impossible to find employment. He ended up in IT due to his familiarity with computers and experience working with audio/visual equipment in college.
Brooks said that even if he was in the market to buy a home, he needs another five years so that he can be financially solvent and be able to afford the down payment on a median-priced home. “I almost feel like putting all that money into a home locks me into a tricky situation,” Brooks said.
In the past, many first-time homebuyers relied on their parents and families for contributions to down payments. But as a result of the 2008 financial crisis, a lot of liquid wealth evaporated and generational transfers aren’t as common or as easy as they once were.
Hillary Clinton and Donald Trump left housing in the dust during the debates. After the election, however, no matter who wins, it’ll be a chief economic issue to handle. Income stagnation, housing shortages, potentially rising mortgage rates, and worsening affordability all could come to a head in 2017. So they better take note.
The original article can be found here.