Who exactly are the millennials?
And why do they matter so much?
The millennials are defined as people born between 1981 and 1996. They're an important group because they grew up with computers, technology, and smartphones in their hands, unlike previous generations. They're connected digitally to others and this connection changes the way they behave.
We've seen in the data, that millennials are behaving differently than other generations in significant ways. The way they buy homes, the way they look at raising families – these are things we need to watch that as investors in order to make intelligent decisions about what the future holds.
Millennials today range between the oldest, nearly 40 years old, and the youngest about 21. In terms of data, what do we know about millennials regarding how they buy homes versus how they rent and where they live?
This generation has been behind on homeownership historically. When you look back at the data, they've trailed the previous generations on homeownership, and while they're making up some of the gaps, they continue to lag behind prior generations.
Here are some numbers: At age 30, 42% of millennials own homes. Gen X, the previous generation was at 48% and 51%. Of the two generations back, baby boomers owned homes at that age. So what we're seeing is over the years, at the same age, that different generations are less and less likely to own homes.
There's a ton of millennials out there, so when you apply those percentages across 72 million of them, that's about 4 million homes that should be owned by Millennials compared to Generation X behavior, but it's not. That leads to the question,
What are they doing instead?
Well, there's only two options. You either own a home or you rent your home. So they're renting their homes, and it's fair to assume that most of those who are doing rentals are renting apartments. This data, the 72 million millennials, is not coming from a biased source. It's coming from the Census Bureau. This is data coming from people who do demographics and data for a living. It's a big change.
Why is this happening?
There are a couple of theories that make sense. First, there's an economic argument. Millennials had their economic world views informed right around the 2008-2010 housing crash. Seeing this informed their mindset that housing is a giant gamble. It's a casino – it can go up and go down. They ask themselves, Do I really want to put a huge percentage of my net worth into this asset class? And the answer is no, they don't want to risk it.
The second is more of a lifestyle decision. This goes back to being connected. Millennials have more of a desire to be free, to not be tied down. They don't want to have a home driving their lifestyle decisions. They want to be free to move. Let's say they want to move from New York to Houston, they can do that very easily. It's expensive to sell a home, but it basically costs nothing to end a lease. So perhaps there's a mental component that's driving the decreased homeownership in the millennials.
What does all this mean for apartment building investors?
It means there are millions more people who, for whatever reason, whether it's lifestyle or economics, are choosing not to be the owners of their home. If they're not going to own their home, someone has to fill that gap. Someone has to save the capital, spend the capital, put it to work, buy the asset, continually put money into the capital expenditures on the asset, and get a fair return on their capital for doing that. Ultimately that's going to be us, the apartment building investors.
There is a strong long term demographic trend toward more renters, more demand for rental units, and that's something that we as apartment building investors can take advantage of. There are 72 million of these millennials, and their behavior says, we're going to be renting our housing, not owning. That's where we come in. We're going to provide the housing for them and we can reap those returns.
If you are interested in taking advantage of this trend, schedule a call with us by visiting our website nighthawkeguity.com/join