Housing costs, birth rates may redefine American dream for younger generations | Home Front
Delays among younger consumers to make key life commitments, such as entering the workforce, purchasing a car, getting married or having children, is well documented. While one reason might be the preference among millennials for experiences over things (creating nontraditional milestones and definitions of success), certainly another is simply economic in an era of heightened financial instability.
The dramatic rise in the cost of housing, whether it be renting an apartment or purchasing a home, is a logical explanation for the delay in household formation as so many continue living with family and sharing spaces with others to manage costs. With less household formation, lower birth rates follow.
A study published in the Journal of Urban Economics showed a direct relationship between housing prices and births. It concluded that when housing prices increase by 10%, the birth rate declines over 1%. Considering the price of housing has increased in markets such as ours by more than 50% in the last three years alone, and over 375% since 1990 across the country, one may surmise that some decline in the birth rate is inevitably correlated. According to the National Center for Health Statistics, birth rates in 2020 fell to a record low of 1.64, which is below the level needed to sustain the current population. No doubt COVID played a role that year, yet the rate has been falling at a faster pace as housing costs accelerate.
Is homeownership – a bedrock of the “American Dream” and critical for wealth-building as well as myriad societal and cultural benefits – destined to be merely an aspiration for Gen Z (born 1997 to 2012) rather than an expectation as it was previously? If so, what are the potential implications nationally of an accelerated birth-rate decline? What might be the impact of a declining population on demand for housing and, therefore, real estate values?
The cost of housing, like most other goods in a free market society, is simply a function of supply and demand. Even if birth rates continue to decline for the foreseeable future, I would submit the influence on demand would prove insufficient on its own to bridge the significant housing shortage estimated between 5 to 10 million units at present. And, while theoretically interesting, I certainly wouldn’t bet on this factor having a measurable impact on housing demand for some time to come. Instead, perhaps the greatest potential change on the horizon may prove a shift in preferences to smaller homes to match the new, smaller average size of the American family which, in turn, may be obtained at a lower price.
Numerous countries around the globe are currently grappling with declining birth rates, with actuaries predicting dire consequences in the decades to follow as fewer young people work and pay the taxes needed to support prior generations living longer. Of course, any shift in demographics over an extended period has potentially profound implications for housing as well, yet for the reasons mentioned I see no material impact on prices in our region and beyond during the balance of my career.
For younger generations struggling with affordability, that’s certainly not the result they seek.
Budge Huskey is chief executive officer of Premier Sotheby’s International Realty.
This article originally appeared on Sarasota Herald-Tribune: BUDGE HUSKEY: Is American dream getting out of reach for Generation Z?
