Millennials are so yesterday. The newest generation of first-time homebuyers Is Generation (Gen) Z. Is this generation of eager younger homebuyers destined to deliver the housing market from its inventory and sales volume stupor?
Here in California and across the U.S., the housing market is lagging behind historical expectations. Home sales volume has never fully recovered since the 2008 recession, essentially flat each year since 2009. This flat performance is despite rapidly rising home prices.
Millennials — born as early as 1980 through the late-1990s — have made a disappointing showing in the housing market.
The past decade ought to have seen Millennials making up a large share of the first-time homebuyer population. However, 79% of Millennials report needing to put homeownership on hold for at least one reason. This significant share is compared with 64% of Generation X and 48% of Baby Boomers who have ever had to put homeownership on hold, according to a Trulia survey.
This (often indefinite) delay is due to a number of negative factors, which are mostly boiled down to them coming of homebuying age during the Great Recession and long recovery, causing:
- delayed entry in their careers, an income issue;
- taking on more student debt, a debt-to-income (DTI) issue;
- outsized rents compared to incomes, a savings issue; and
- a lack of new construction, an inventory
In 2020, members of Gen Z are quickly approaching their homebuying years, with the oldest among them in their early 20’s. The good news for housing: experts are forecasting Gen Z will have a combined higher homeownership rate than Millennials.
Their reasoning is that today’s inventory shortage will be lessened in the coming years. Experts are also guessing that Gen Z will take on less student debt than their preceding generation.
But what it really comes down to is Gen Z’s preference to own, which experts forecast will be higher than the preceding generation.
Millennials saw Baby Boomers and Gen X — their parents — lose their jobs, their homes and retirement savings as a result of the financial crash and Great Recession, both tied closely to the housing market. It’s no wonder that many Millennials associate homeownership with financial insecurity.
But experts say this next generation of first-time homebuyers will lack that negative experience, and thus have a stronger preference for homeownership.
Obstacles to homeownership for Gen Z in California
Even if Gen Z feels the homeownership drive more than Millennials, there is one big problem, which is felt especially hard here in California.
The insurmountable issue is our state’s widespread housing shortage.
In 2018, the number of residential units started was 31% below the historical average. Construction reports for 2019 are still coming in, but as of October, total starts continue to fall, 7% below a year earlier, year-to-date.
To raise construction numbers to a level sufficient to meet California’s large demand for housing, legislators need to first adjust zoning. Less restrictive zoning in areas close to jobs, public transport and cultural amenities will encourage builders to organically build, rewarding residents with more housing and stable prices and rents.
Adding legislative bonuses like tax incentives and swifter permitting times will also give construction a much-needed boost.
Some of these law changes are already underway in California. As builders gradually adjust to these positive changes, construction will pick up in the coming years. With more housing available, Gen Z will be in a good place to act on their desires to buy — as long as growth continues. Otherwise, even Gen Z’s homebuying preferences won’t be enough to surpass Millennials’ depressed homeownership rate.