A lot of millennials are still living at home with their parents, but as more and more of them begin moving out in the coming years, they could have a significant impact on both the housing and rental markets.
Many millennials – defined in the study as adults currently between 25 to 34 years old – are still living with their parents due to a series of economic factors, but as they start to age and move out on their own the number of millennial households is expected to swell by about 2 million new households per year, increasing from an estimated 16 million millennial households in 2015 to an estimated 40 million new households by 2025, according to the 2016 State of the Nation’s Housing report by Harvard University’s Joint Center for Housing Studies.
The State of the Nation’s Housing report, released annually, “provides a periodic assessment of the nation’s housing outlook and summarizes important trends in the economics and demographics of housing,” according to the Joint Center for Housing Studies.
So what will fuel this significant growth in new millennial households?
Chris Herbert, managing director of Harvard’s Joint Center for Housing Studies, cites many factors for the anticipated surge in new millennial households.
First, the housing market is still recovering from the worldwide crash in 2008, but the crash affected millennials less than other demographic groups because many were still in high school or college at the time and were mostly already living with their parents.
In the aftermath and recovery from the global housing crash, many millennials simply put off moving out from under their parents’ roofs and either buying or renting a place of their own. Many more who had been living on their own decided to move back into their parents’ homes, and some millennials who would have preferred to live on their own or with a roommate simply couldn’t afford it at the time.
Millennials, too, are now better secured in their jobs (or actually have one now), and – typically – making more money than when the market crashed in 2008.
For a generation with many members who have never not lived under their parents’ roofs, millennials are hungry and financially able to finally live on their own.
The problem, Herbert notes, is that as the housing market continues to build momentum and economic gains continue to hold steady, there is greater demand for housing units across all socioeconomic spectrums than there actually are enough units to satisfy that demand.
“Tight mortgage credit, the decade-long falloff in incomes that is only now ending, and a limited supply of homes for sale are all keeping households — especially first-time buyers — on the sidelines,” Herbert notes. “And even though a rebound in home prices has helped to reduce the number of underwater owners, the large backlog of foreclosures is still a serious drag on homeownership.”
Even more concerning, the study finds, is the “widening gap” between market rate rents and the number of cost-burdened renters who can afford the 30-percent-of-income standard most economists recommend should be spent on living expenses. That number hit 21.3 million households in 2014, while 11.4 million of those households paid more than 50 percent of their income on housing costs, which was also a record high in the history of the study that dates to 1988.
Right now, roughly 22 percent of millennials still live with their parents, a figure that has risen from 17 percent in 2008, and Herbert said that the data for 2015 appears to show the trend increasing.
But by 2025, the number of millennials living on their own is expected to increase from the 16 million households it is currently estimated at to 40 million households.
And when millennials do begin to move out of their parents’ places, the study finds that a very large percentage of them want or expect to own a home rather than rent.
Eighty-five percent of those surveyed under the age of 30 said they expect to own a home someday, while 69 percent between the ages of 30 and 39 expect to become homeowners. Overall, 83 percent of people said they expected to own a home at some point in their life.
But the need for rental housing will also remain in demand for millennials that either can’t afford to or don’t want to buy a home, and they will tend to be more racially diverse in the future. The study found that minority or immigrant households make up about half of all renter households, while just one in four of those types of households own homes. More families with children are renting now too, with 31 percent of households with children now renting compared to 27 percent of families with children who own homes.