4 Big Ways Millennials Are Shaking Up the Housing Market
The trillion-dollar real estate market in the United States is quickly evolving. A big part of the shift away from home ownership and towards renting can be attributed to characteristic differences in the Millennial generation, who tend to not only have different attitudes and preferences towards housing and home ownership, but who are also growing up and “adulting” in an economy and environment that looks very different from the one their parents grew up in.
This has given rise to co-living as an alternative. An increasing number of younger renters are willing to live in smaller spaces and pay a higher price per square feet, in exchange for access to more value-added services, from housekeeping and concierge services to swanky amenities.
This article looks at four Millennial-driven trends and how they are transforming the housing market: a growing gig lifestyle, a growing desire for location independence, shifting social norms, and undesirable housing inventory.
#1 - They're facing rising costs of living and are turning to a gig lifestyle to cope
Today, the 9 to 5 schedule is practically extinct, with technology and the internet allowing people to work across around the clock across geographical locations in a seamless, connected way, blurring the lines that clearly separated working hours and non-working hours.
Technology has also changed where people work – instead of being stuck at a cubicle, working out of coffee shops, in hotel lounges, or on a park bench is no longer a novelty but the norm. Due to rising costs of living, one job is not enough for many people to make ends meet. Many are choosing to pursue “side hustles”, such as freelancing on the side or driving for Uber, or to be “full-time gig workers” working at more than one job simultaneously. Freelancers are predicted to become the U.S. workforce majority within a decade, with nearly 50% of millennial workers already freelancing, a 2017 annual freelancing study found.[1]
#2 - They have a growing desire for location independence
While some may be working side gigs out of necessity rather than choice, the younger generation also tends to be more embracing of a nomadic, location-independent lifestyle. According to a study by the Boston Consulting Group[2], Millennials report a greater desire to visit every continent than preceding generations, and have greater interest in cultural experiences and international travel – with the effects being significantly delayed home ownership. Compared to home ownership levels of above 50% when the preceding generations were 25 – 34 year olds, only 39% of the 25 – 34 year olds of today own a home – a figure which is predicted to continue declining further.
#3 - They're shifting social norms - from living with spouses to living with roommates
Millennials are marrying later and remaining single for far longer than previous generations. In 1975, a 57% majority of young adults aged 18-34 lived with a spouse. In 2016, only 27% of young adults lived with a spouse, while the proportion living with their parents or other roommates increased[3]. A variety of factors may contribute to this trend – economic pressures of student debt, fears of financial instability with recent recessions still fresh in their minds, or Millennials’ desire to “find themselves” or establish their careers before settling down.
With an ever-increasing number of people flocking to tech hubs and big cities in search of jobs and better opportunities, choosing to delay marriage, this has created a new social challenge. Newcomers to a neighborhood face the challenge of meeting new people and finding a community amid busy work days. To address this need, more and more companies are establishing co-living residences in major cities, betting their money that this shared human desire for connection and community will pay off in the long run.
#4 - They're facing an undesirable real estate market and renting for longer
The real estate market in the United States today is facing historically low levels of housing inventory in the middle and entry-level tier of the market. With rising prices, potential mid-level home buyers are unable to afford a housing upgrade, and are deciding to stay in what was intended to be their starter homes. Because many owners of starter homes are deciding not to leave and sell their properties, there is now a shortage in the market for new or younger buyers who are looking for starter homes but have nothing they can afford. This causes them to delay home ownership altogether and continue renting for longer.
In conclusion…
All of these reasons combined have led to a growing demand for the alternative residential options that co-living provides. As with any major change, there will emerge winners and losers.
However, the rise of co-living and its long-term impact is still an unfolding story, shaped by multiple forces in the market. What will remain constant, regardless of fluctuating rent and prices, is that the ability to understand customers’ needs and to provide the ultimate amenity – service – will always be of relevance to companies wanting to earn their slice of the lucrative real-estate pie.
Sources:
Upwork and Freelancers Union, Freelancing in America. 2017.
BCG Perspectives. Traveling With Millennials, March 2013.
Stateline, Huffington Post. For Many Millennials, Marriage Can Wait. (Dec 21, 2016). https://www.huffingtonpost.com/entry/for-many-millennials-marriage-can-wait_us_58594a53e4b0630a254235b6
How the Gig Economy is Affecting Real Estate
In a few short years, “co-living” and “co-working” have gone from a niche alternative to something that every major player in real estate wants a slice of.
One important phenomena driving this shift is changes in the way people work today. People now work 24-7 from anywhere in the world and have lower levels of job security as compared to previous generations. This has given rise to the emergence of the "gig economy" - a key driver behind the growth of short term rentals.
The Extinction of the 9-to-5 Workday
For much of the last few decades, the majority of the population held jobs that started at 9am and ended at 5pm.
Today, that 9-to-5 schedule is extinct. Technology now allows people to work across time and space, blurring the lines that separated working and non-working hours.
Technology has also changed where people work. Instead of being stuck at a cubicle, working out of coffee shops, in hotel lounges, or on a park bench is no longer a novelty but the norm.
Even for companies who operate based on 9-to-5 office hours, employers find that allowing remote work has benefits. Not only can it increase productivity and save cost, but can also be beneficial in closing the gender gap by allowing young mothers to work from home.
There are several types of workers whose work hours fall outside the 9-to-5 schedule:
Those who hold part time jobs along with full-time jobs or while studying,
Those who work remotely (whether in a full-time or part-time capacity) for an employer, and
Those who are self-employed.
Gallup's 2017 State of the American Workplace report showed that as many as 43% of American employees were working remotely and for longer periods.
A Growing Freelance Economy
Today, the “side hustle” or “side gig” has become the norm as a way to make ends meet.
This is partly due to financial pressures from the rising cost of living (with rents increasing 2x as fast as wages, according to a report by StreetEasy examining data between 2010 – 2017). But it is also accelerated by online work platforms including as Uber, Airbnb, Etsy, and Fiverr that allow individuals to earn an income outside of traditional employment.
Whether by deliberate lifestyle design or prompted by financial pressures, millions of workers across the United States have started earning their living through the "gig economy". Many workers often hold multiple gigs at the same time.
A 2017 annual freelancing study predicts that freelancers will become the U.S. workforce majority within a decade. Currently, already ~50% of millennial workers are already freelancing,
The Evolution of Real Estate
All these reasons combined have led to several rising trends that hold important implications for real estate. Some of these trends include:
1. Growth of short-term corporate rentals
Hiring experts or specialists across regions allow a company to scale up and down its operations at will. This translates to cost savings and increased ability to grow. To meet the needs of these companies, corporate rental companies have grown in scale. These companies ensure an apartment is "move in ready" for traveling business people.
2. Growth of short-term residential rentals and co-living
There is a growing number of self-employed freelancers who move from place to place working on temporary projects. Such "digital nomads" create demand for short term rentals and co-living spaces that provide access to amenities they would not be able to afford otherwise.
3. Increased market prices crowding out every day renters
Short-term rental options provide flexibility for renters, but lead to increased prices per night. These steeper prices are a tradeoff for the flexibility and (almost hotel-like) services provided. Regular renters who can only afford monthly rents are being squeezed out of units that co-living and corporate rental companies are snapping up.
4. Lack of long-term contracts leads to low reserves and potential crisis if economy dips
Many co-living and co-working companies sign short term contracts (for as little as weeks at a time) with the individuals and companies renting from them. This creates a ticking time bomb for the whole industry. Any dip in the economy could mean these contracts will not get renewed and units will stay vacant as renters cut costs. It also raises the question of sustainability (in the event of a crisis) for companies with low reserves due to their short-term contracts.
While there is a lot of potential for co-living and co-working to meet gaps in the market, there are also risks and concerns to consider.
For instance, authorities in Boston are looking at how to regulate the industry. Corporate and co-living spaces offer similar high-end services and finishes as hotels yet are not taxed like hotels, and hence are able to offer more competitive prices.
Meanwhile, the founder of one of the most successful co-living start-ups, Common, has shifted away from its core model to more traditional rentals. This move acts as a hedge against its co-living properties in case the market goes down.
Given the impact of changes in the economy and speculation surrounding increased regulation, it would be wise to treat the current hype around co-living and short-term rentals with caution, and to understand the implications and long-term impacts of investing into this space.