Millennials – are experiences better than home ownership?

We are all well aware that there is a housing crisis. Taking an economic standpoint, we could argue that it is an issue of pricing, of affordability, of too low supply or lack of demand for the right type of houses. However, there is another school of thought which says part of this crisis is a social problem, a Millennial Generation problem, and the fact that the concept of ownership is no longer a priority.

So who are these Millennials and how are they affecting house demand?

The millennial generation or Generation Y (as they come after generation X), are people now in their mid-20s to mid-30s, and they would usually make up the prime housing market. However, this generation is doing things a little differently. The Baby-Boomers left school or University, got a job, got married, bought a house, had babies and saw success as being financially stable. For those who purchased in the late 1970s or early 80s, this meant they got relatively cheap, big houses, compared to today’s standards. The change in mindset and lifestyle choice from these Baby-Boomers to the Millennial generation is having a big impact on the housing market.

More Risk than Opportunity in Buying a House

The Millennials are getting married and having kids later than previous generations, some because of lifestyle or career choices, others as they have less income security. In an American context, many have very high levels of student debt that inhibits their ability to save for a down payment on a house or to meet mortgage requirements. They have also seen the effect of the housing bubble and have seen parents, family or friends who were burned financially by the housing crash. They are afraid or, at the very least, wary of making the same mistakes as the generation before them. They are the first generation that sees possible more risk than opportunity in buying. They are also a very career focused generation, with both males and females looking to establish themselves firmly on their career path. They invest a lot of time and energy in their careers and often are reluctant to let this go to settle down. Research tells us that this can be particularly true for woman, who feel they have worked very hard in the jobs to achieve a certain position, and the idea of starting a family and setting down can be a scary one.

A Different Definition of Success

They often value experiences and the freedom to be flexible over purchasing a house and being forced to put down roots in one spot, and so they make different lifestyle choices. They want to live in more expensive cities and have an apartment downtown with easy access to their jobs, to gyms, yoga studios, good restaurants, bars, and clubs. They don’t want long commutes every day, they want to use their time to focus on health and wellness and experiences. And, they define success differently.

They see success as being able to afford flexibility. They want to be able to rent in a good location in a good city, and move job or move city if it suits them. Forbes tells us that 60% of Millennials are currently open to new job opportunities. So, why tie yourself down to a 40-year mortgage in a location where you are not sure that you want to live in for the next 40 years. By renting they are giving themselves geographical independence.

They want to spend their hard earned money on travel, on experiences, on extreme sport, on an Instagram lifestyle. Why buy a house, when you can rent? Why buy a car, when you can take a cab or book a rental car? Why buy a holiday home, when you can book the craziest accommodation is the farthest-flung corners of the world? And, according to psychologists, this way of living can actually make you happier. It gives the millennials a sense of well-being and happiness that the stress of owning a house does not provide. They don’t have to worry about the TV being stolen, the washing machine breaking down, the car getting a scratch. They worry about taking the perfect selfie for Instagram while traveling on the adventure of a lifetime, or out with friends in the coolest bars.

Millennials Don’t Want Baby-Boomer´s Houses

When the Millennials do decide to settle down, they want to do so in a very different house to the Baby-Boomers who came before them. They have finally reached the decision to buy and are not interested in hopping on the property ladder. They want something that exactly suits their tastes. They want to buy modern, well-built houses with good plumbing and electrics. They want open-plan layouts, sleek interior design, in-built appliances, and KNX systems that allow them to control everything from a single keypad. These features are not found in older homes. The older homes need to be renovated, re-planned, re-wired and re-loved, this is not a priority for the Millennials. These homes are often selling at steep discounts because of the demand for them in not there.

How to get Millennials to Buy Houses

The easiest answer to this dilemma is probably to wait for them to be ready to buy! A house purchase is a big decision for anyone and it is a long term commitment. No one should jump lightly into a house purchase, and while we have said Millennials are not ready, is not the case for all Millennials, some really do want to buy, but it´s hard. They face strict mortgage lending criteria, big down payments and a shortage in supply of desirable properties.

A review of lending requirements, educating them on the exact amount they require as a down payment or encouraging them as early as possible in their working lives to start a down payment fund could all help. Banks looking at repayment ability in a border context should also be considered. If a Millennial can demonstrate that they could pay rent on time and in full over a long rental period, then this should be used as a measurement from the banks, not just the strict bank criteria.

Or realtors need to expand what they see as their target market. Just because this should be one of the biggest house buying groups, doesn’t mean that it will always be that way. Look to the Baby-boomers looking to downsize, examine the trends in house renovation and seize the opportunities out there on older homes that could be reworked to become a lucky Millennial´s dream home.