Homebuilders aren't building enough for millennials
That generation is expected to be the largest single cohort of homebuyers next year, but the nation's homebuilders are not keeping up. This is already exacerbating the shortage of homes for sale and for rent nationwide, but will especially hurt affordability for millennials (those born between 1981 and 1997).
While the majority of both single- and multifamily home construction is in millennial-dense counties, it actually lags the rest of the nation when it comes to meeting demand. Millennial counties, defined as geographic areas where at least a quarter of the population consists of this demographic group, account for 62% of the entire U.S. population, but they account for just 59% of single-family homebuilding, according to the National Association of Home Builders' Home Building Geography Index, or HBGI.
"On the surface, these numbers look similar, but you would expect the single-family construction share to be higher in millennial intensive areas, which tend to feature greater amounts of household formation and population growth that require additional housing," said NAHB Chief Economist Robert Dietz.
And it's not just in urban areas. Millennial counties are of course in big markets like Seattle, Boston, Portland, Oregon, and Washington, D.C., but also in rural parts of Ohio, Kansas and Missouri. Homebuilding is still nowhere near its historical levels, nevermind today's very strong demand. Much of that is due to higher costs for land, labor and regulatory compliance. It takes much longer to build homes now because of the acute labor shortage in the construction industry.
"You don't see only a shortage for millennial product where it should be, you kind of see it for all over, but it's especially intense for millennial product because that's where the core demand is right now," said Mark Boud, chief economist at Metrostudy.
Multifamily construction in millennial counties, which accounts for 80% of all apartment activity nationwide, is picking up but still slower than the national pace.
"The HBGI highlights the ongoing challenge of housing supply, particularly for younger households seeking affordable rental housing or attempting to gain a toehold on the homeownership ladder," said NAHB Chairman Greg Ugalde, a homebuilder from Torrington, Connecticut.
The shortage of homes for sale is most acute on the lower end of the market, where millennial demand is highest. That has caused home prices to overheat in that category, while prices are actually moderating in the move-up and luxury markets.
Millennials, overall, have waited longer than previous generations to become homeowners, but their share of new mortgage originations is expected to top 50% in 2020, according to a recent forecast from realtor.com. Given the acute shortage of entry-level, existing homes for sale, millennials may turn more to new construction. Without a ramp-up in production, affordability for this generation will only get worse.