“Are you kidding me? I’m not going to shell out money for a down payment and keep having to pay for a mortgage and HOA fees,” says Ania Woj as she flips through her Netflix account. “I’ve still got my car payments and student loans to pay off. Getting a place would be a nail in the coffin — I wouldn’t have a life because all my money would be going toward paying things off!”
Woj is a millennial who recently graduated from The University of Southern California with a master’s degree. Her reason for not wanting to own a home is echoed across the nation as more and more millennials are finding it harder to stay abreast of debt management and a higher cost of living.
According to data from Redfin, a residential real estate company, 2015’s median housing price in Los Angeles was around $575,000, and the amount that the average millennial could afford to spend on housing is only $111,000. It doesn’t take a math expert to understand that home affordability for millennials is out of reach and the traditional vision of the “American dream” and the pursuit of happiness has transformed considerably since the baby boom generation. How, then, are millennials choosing to address this issue and what types of housing alternatives have they begun to embrace?
“Millennials are living completely differently from the previous generation — they’re delaying marriage and embracing a more balanced lifestyle,” says Robert Lo, executive vice president and head of commercial and real estate banking at East West Bank. “Millennials have the mind-set of enjoying more of the present and may not be as eager to save for the future.”
Radpad, a leading national mobile rental app service, surveyed 20,000 millennial renters earlier this year and found that 40 percent are renting an apartment with a married or unmarried partner. A study by the Pew Research Center last year also pointed to more millennial renters, approximately 48 percent, doubling up with a roommate or roommates.
“Home-ownership rates are at the lowest in 25 years,” says Jonathan Eppers, CEO and co-founder of Radpad. “I also believe that renting is a lifestyle choice for millennials who find it an attractive option for their flexible, on-the-go lives.”
With technology advancing on all industry fronts, it comes as no surprise that the real estate market is also adapting to the trend. “Not only is renting changing in America, but the technology supporting and driving the change is evolving as well,” says Eppers. “You really don’t have to look back more than five years, [when] the only real option for renters searching for an apartment was Craigslist.”
The market has come a long way since then, and today’s digital-savvy customer uses apps like Radpad to hunt for housing. “More than 90 percent of people looking for their next living situation are searching online first, and more than 60 percent are looking on mobile,” says Eppers.
The National Association of Realtors and Google released a study confirming the importance of digital convenience for the next wave of renters and homeowners. Real estate searches on Google grew 120 percent from 2011 to 2012, with the percentage number increasing year-over-year.
Other technology updates include an uptick in social media engagement as millennials increasingly rely on digital reviews, images and referrals when making a decision. Correspondence, paperwork and payments are also being completed online, making it more convenient for renters, buyers and landlords to connect.
"More than 90 percent of people looking for their next living situation are searching online first, and more than 60 percent are looking on mobile."
Owning a suburban cookie-cutter home with a white picket fence is a far cry from the millennial definition of visible success. “According to a recent study from the Urban Land Institute, millennials identify themselves with these key words: entitlement, connection, ambition and innovation,” says Wei Huang, vice president of acquisition and asset management for property developing company LT Global Investment Inc. “All of these words can also be translated into the features millennials demand in their housing units.”
Features such as proximity to public transportation, and amenities such as an indoor gym, are just a few of the niceties that millennials seek. One feature in particular that is increasingly important for millennial renters involves pet friendliness. “More apartments are becoming pet-friendly,” says Huang.
“This indicates that real estate understands that 90 percent of millennial apartment renters are not married and that more than 60 percent of these unmarried tenants own pets.”
"We’re seeing more millennials spending less time in their own units and spending more time in social spaces."
Convenience has also become a top priority for urban millennials on the house hunt, and residential mixed-use spaces are a part of the solution to address their needs. As population density in urban areas continues to climb, mixed-use spaces that integrate residential and commercial purposes in the same area are being developed out of necessity. LT Global Investment Inc.’s current development project in Anaheim, Calif., that plans to incorporate 400 residential units; 430,000 gross square feet of retail, entertainment, grocery, fitness and dining space; 200 hotel rooms and 77,000 gross square feet of office space, is a prime example. “I think the mixed-use project isn’t just driven by millennials,” says Huang. “It’s just a natural progression when you have a denser population and limited land.”
Ideal housing locations in prime cities are also becoming a competitive asset, and more millennials are paying the price of living downtown in exchange for space. Micro-units, which are housing units with an area of less than 300 square feet, remain a popular option for those who find it increasingly difficult to afford urban spaces. “We’re seeing more millennials spending less time in their own units and spending more time in social spaces,” says Huang. “What’s interesting, though, is that despite sitting next to each other, they’ll still be engaged on their phones.”
"Millennials identify themselves with these key words: entitlement, connection, ambition and innovation."
“Young renters are certainly leaning towards more flexibility,” says Eppers. “I think the blurring line between short- and long-term rentals is interesting.” The combination of low home-ownership rates, surging rents and more on-the-go lifestyles pushes millennials to forge their own housing rules. More flexibility and less commitment, more convenience and less commuting, more interconnectivity and less confinement – these are all trends that define millennials’ lifestyle and their preferences.
Although the social pendulum currently swings more toward risk-adverse community sharing and less ownership, the trend may shift again depending on economic circumstances. “Renting and not buying is a temporary trend,” says Lo. “As millennials grow older, they’ll invest in home equity.”
Lower mortgage rates combined with fair housing values that promise investment growth can further encourage millennials to take the plunge and become homeowners. “It’s not that they don’t want to buy homes,” says Huang. “They’re planning to do so but can’t at the moment, and are in the process of preparing to purchase.” It’s still unclear as to when more millennials will begin to own homes and make them their most valuable assets, but Huang doesn’t seem concerned with the cooling housing market.
The trend among millennials today may not be the case for the next generation of eligible home buyers. “Go back to your parents and ask them about the housing market whenever they were the major purchasers,” says Huang. “I’m sure you’ll find that the trend catered toward whatever they liked back in the day.”