The Housing Chronicles Blog: Marketing to Millennials: Buying a home or a car not yet a priority

Thursday, September 20, 2012

Marketing to Millennials: Buying a home or a car not yet a priority

For several years now, we’ve been hearing about how to market to the Gen Y cohort, also known as Millennials or Echo Boomers.  Sure, they’re attracted to technology and sustainability, but what if their attitudes about owning things like cars and houses are completely different from the generations which preceded them?  According to a recent story in The Atlantic magazine, it’s possible that a perfect storm of economic and demographic forces have altered the very way that this generation participates in our consumer culture, potentially changing how we develop and build housing in the years ahead.

For those of us who remember driver training classes in high school, getting that license meant gaining independence, demonstrating responsibility and embarking on adventures outside of the local neighborhood.  But that was then, and this is now. Back in 1985, adults in the 21-34 age range bought 38 percent of all new cars sold, but by 2010 that capture rate had fallen to 27 percent.  While more people could be simply buying used cars, the proportion of teens with a driver’s license fell by 28 percent between 1998 and 2008.

Enter the sharing economy, in which companies like ZipCar, and thredUP allow members to share, rent or sell goods which would otherwise simply sit idle.   Yet according to a ZipCar survey, it’s been the evolution of the smart phone – yes, the smart phone – which has somewhat replaced the car both as a status symbol and as a way to stay connected to the outside world.  At the same time, the connectivity of those same smart phones has symbiotically energized a sharing culture which relies on technology.

When it comes to housing, however, the sharing economy has had a lot more to do with The Great Recession and steep student loan bills than technology.  According to Harvard’s Joint Center for Housing Studies, between 2006 and 2011 the homeownership rate among adults under 35 fell by 12 percent, and another two million had boomeranged to live back with their parents.  A report from the New York Federal Reserve showed that just 9 percent of those aged 29 to 34 were approved for a first-time mortgage from 2009 through 2011.  Nonetheless, a recent FannieMae survey reported that 90 percent of Millennials still aspire to owning a home someday even as they contend now with low savings, low pay and tighter lending standards.

So, over the next decade, as a group of people of over 35 million begin to form households, where will they live?  According to a 2007 survey, 43 percent of Milliennials would prefer a close-in suburb where both the need for cars and the size of homes can be smaller as a trade-off for proximity to reliable public transit, shopping and entertainment options.  One great example of this would be the redeveloped Culver City, CA, which, besides being the home of Sony Pictures, has become a trendy spot for restaurants and bars, and will now be more accessible with the recent opening of Phase I of the light rail Expo Line (which promises to whisk riders to downtown Los Angeles in less than 30 minutes).

Places like Culver City offer up what’s called “urban light,” which blends the best of suburban attributes like good schools and safe streets with the efficiency of smaller residences connected to a town center with a transit stop.  Although there will still be great opportunities for builders and developers, they will have to continue evolving along with their customers.  This will likely mean fewer suburban tract houses in favor of well-designed flats, semi-private townhomes and small homes which preserve the functionality of single-family living in a denser environment.  It will mean more households opting to rent than buy – at least in the short to medium run.

Nonetheless, on a larger scale, this gradual shift to higher-density living could have profound impacts on the entire economy, chiefly productivity.  For example, research has reportedly shown that doubling a community’s population can increase economic output by 6 to 28 percent, and that half of the variation in per-worker output between states can be largely explained by density.  Moreover, by spending less on housing and cars, consumers will have more money left over to save or spend on education, thereby making them more nimble for a global and largely knowledge-based economy.  This industry could thus have an outsized impact on the future:  by deliberately encouraging Millennials to live closer together and share their ideas (as well as their cars and extra rooms), America could regain its economic strength for generations to come.

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