Feb26

By Melanie Reuter, MA

There has been much talk about baby boomers in the world of real estate.  Beginning years ago, professionals and home owners began to make decisions based on the needs and wants of an aging population – fixtures that would be easy for old hands to use, single-level homes, elevators and nearby amenities. Boomers (born between 1946 and 1964) began to hit retirement age in the 2000’s and represent 27% of the Canadian population as of the last census.

Boomerangs and Barnacles

And now savvy investors with rental property may want to consider the needs and wants of another portion of the population. The children of the boomers, known as the Y-Generation or Millennials, comprise the largest portion of the population and will hugely shape our housing market. Born between 1977 and 1994, Gen-Yers also represent 27% of Canada’s current population. The sheer size of this generation indicates that “Its impact on real estate and the economy in general will be as striking and long-lasting as that of the baby boomers”[1] Just 21% are married (half the percentage of their parents’ generation at the same ages) and 34% are parents. Only 20% of them list owning a home as a major priority.

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Figure 1. Millennials are often affectionately referred to as either the ‘Boomerang Generation’ (children of boomers, who move out, and come back again) or the ‘Barnacle Generation’ (that are affixed and never leave)!

Research conducted by Wells Fargo found that 90% of US born Gen-Yers (also known as Echo Boomers – whom they classified as being born between 1980 and 1995) had less than $1,500 in assets[2]. The research generalized that they don’t prepare or save for the future. They value education, leisure and people more than previous generations.  Yet, it is said that because of their spending power, if your business does not understand the needs and wants of Generation Y, by 2020 you won’t have a business.

Many still live with their parents. Many in this group of Millennials, known as the Barnacle Cohort, have spending power beyond their own incomes, grafting to the income of their parents[3].

Surpassing the desire to own their own home is the desire to earn a graduate degree and live in “social areas”, which are characterized by places that allowed one to work, live and fraternize in the same vicinity; a place with restaurants, entertainment, parks, museums, shopping and employment.  Within this cohort, 13% were home owners and 33% stated an interest in owning a home (females had a higher desire than males).

This is a generation that is not necessarily expected to have a higher quality of living than their parents did (particularly in the US). They are the most educated in history but the most un- and under-employed[4]. Many have entered the workforce during the Great Recession, a tough job market in some areas of Canada and many areas in the US.  Huge, nearly insurmountable student debt, coupled with high home prices have meant buying a home – one of the traditional markers of adulthood – may not be as easily attained as it has been in the past. Moving from a student debt that may take a decade to repay to a mortgage that will take decades to repay has little attraction for many.

A Generation Adjusts

However, it may be presumptuous to assume that the manicured lawn and white picket fence is naturally what everyone wants. This dream of home ownership seems to be the dream of generations past. In fact, many can argue that it wasn’t even the dream of our parents’ parents who grew up in the Great Depression. To many Millennials, suburbs offer increased transportation costs and a lack of social diversity. Some suffer through it for cheaper housing to find that the trade-off in more square footage or newer digs just isn’t worth it.

As Millennials navigate the landscape equipped with different visions for the future, what does this mean when it comes to their housing choices and location preferences?

Many want what they had growing up as children, or at least are comfortable with equalling it. More than these scenarios exist but consider these two: raised in the suburbs with a bathroom per bedroom, granite and stainless steel, many of these Millennials aren’t willing to give up the appointments they grew up with merely for the bragging rights of owning a home. They want new; they want amenities; size is secondary. Many will pay a premium to rent in the right location instead of paying the same monthly mortgage costs for older, ‘outdated’ models.  Short term enjoyment outranks long term gain.

There is the other side of growing up in the ‘burbs with both parents. Only sixty-one percent of the Y-Generation grew up in a two-parent household, a smaller percentage than the three previous generations. What this often means is that they are used to smaller homes and apartments (more easily supported by one income) accessible by transit and connected to services and amenities. Once again, size is secondary and the dream of an expansive home with media room, guest bathroom, separate home office and a three car garage is not top of mind.

The Cohort is Not Homogenous

Not all will seek city life; many prefer the areas where they grew up. Many enjoyed their childhood and seek to replicate it and return to their hometowns as soon as possible. And unlike other generations, they have not been hit by a loss of equity in the housing market or lost retirement money in the stock market. As they age and have families, many will turn to home ownership, often with the help of a down payment from their parents.

Affordability is still a major challenge, particularly in large port of entry cities like Toronto and Vancouver. Eighty-six percent of Millennials in BC agreed with the statement: “ I desire to own a property in my lifetime, but I am pessimistic about my ability to own a home because of the current house price affordability.”[5] Another emerging condition affecting home ownership will be that Gen Yers will likely have to change careers (not just jobs) one or more times in their lives, requiring more flexibility[6].

However, there is a shift to serial renting and owners of apartments will definitely benefit from this shift.

Given that many Millennials plan to move out of their parents’ home or to a new home in the near future, it is time to pay attention to the housing priorities of the 30% of the population who will shape the future:

 

  1. Location: The desire for flexibility, the ability to move to find new jobs or to shift to funkier up-and-coming neighbourhoods means being mortgage free. Prime locations characterized by a nearness to transit, amenities, and a ‘scene’ – be it art, university, music, or retail are number one on the lists of wants and demands.
  2. Jobs: This is the largest driver of the real estate market and the mobility and freedom that comes with renting means that Millennials can pick up and go where they need to.  Keep in mind that not every twenty-something seeks to be employed in the art scene. A big shift, however, is the increasing ability to telecommute and be self-employed. More than ever before, members of a generation can live wherever they choose and still be gainfully employed.
  3. Technologically competitive: Working from home and telecommuting means that your home must facilitate this. Millennials look to reside in places with the highest speed internet to conduct business and pleasure.
  4. Energy efficiency: This is a generation that wants to lower their carbon footprint more so than any previous generation. Consider real estate offering green technology, LEED certified designs, energy smart appliances, solar power, parking stalls with charging for electric vehicles. Throw in efficient recycling, garbage and composting facilities for extra points.
  5. Size: Less square footage is becoming increasingly acceptable if the unit is located in the right area and is close to amenities. It becomes less important as shared semi-private space is made available. Media rooms, gardens, dog washing stations, gyms and rentable guest suites are trade-offs for small living quarters.
  6. Slick Interiors: Although Millennials will trade size for price and location, they often won’t compromise on interior finishes, demanding granite, composite floors/hardwood, stainless steel appliances and interesting lighting and plumbing fixtures.

 

Developers and city planners are well served to heed the desires of this generation.

Any city or metropolitan region that cannot provide affordable, walkable, and attractive neighbourhoods in which Gen-Yers can afford to live will simply lose the best of them to those regions that have such neighbourhoods.  If they have to “drive ‘til they qualify,” as the workforce before them has had to do, Gen-Yers are more likely to fly off to another city or region[7].

Be cognizant of this shift when choosing regions in which to invest.

Many real estate investors can capitalize on the Millenials’ tolerance for less square footage by having more units to compensate for the increased cost of building or purchasing in highly-sought areas with well-appointed interiors.

Use Population Shifts to Inform your Business

Regardless of how you invest in real estate, be it as a developer, a multi-family or single family investor or an investment Realtor®, knowing how your consumer thinks and implementing effective practices will put you ahead of the competition. Using this information that is based on where the market is going instead of where it has been gives your business staying power.  Millennials comprise nearly one third of the population and their impact on the housing market has only just begun.

ReuterMelanie Reuter is the Director of Research with REIN Canada, a real estate research and education company that has been serving investors across Canada for 21 years. She has a Master of Arts Degree from California State University, San Bernardino and a BA from Simon Fraser University in Burnaby, BC.

 


[1] Kirk, Patricia. (June 24, 2011). Developers Give Gen Y What They Want in Urban Land. http://urbanland.uli.org/industry-sectors/residential/developers-give-gen-y-what-they-want/

[3] Sichelman, Lew. March 13, 2013. Affluence in America: What Gen Y Buys in Urban Land. http://urbanland.uli.org/economy-markets-trends/affluence-in-america-what-gen-y-buys/

[5] Royal LePage Real Estate Services. March 20, 2013.  Despite Challenges, Canada’s Generation Y Still Plan to Own Homes.

[6] Kirk, P.

[7] McIlwain, John, K. (March 18, 2010). Housing Gen Y: The Next Challenge for Cities. Urban Land. http://urbanland.uli.org/Articles/2010/Nov/McIlwainGenY.

 

  • Arthur Zaragoza

    Financial literacy is key for any generation. Thanks to REIN for providing us with great insight of the real estate market. Thanks to investing in real estate my own business is successful. arthurzaragoza.com