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Are Millennials the Solution to the Nation’s Housing Crisis?
During his Twitter-fed Town Hall, President Obama admitted that the housing market has proven one of the “most stubborn” pieces of the economic recovery puzzle to try and fix. The President --- as well the Congress and the building industry --- should consider a new path to a solution for housing by tapping the potential of the very generation whose votes brought Barack Obama into the White House in the first place.
The Millennial Generation (born 1982-2003) represents not just the largest generation in American history but the largest potential market for both existing and new housing in the United States. There are over 95 million Millennials and over the next five years the first quarter of this cohort will enter their thirties, an age when people are most likely to buy their first home.
Despite what is often written about this generation, it is very much interested in owning a home. Sixty-four percent of Millennials say it is very important for them to have an opportunity to own their own home; twenty percent named it as one of their most important priorities in life, right behind being a good parent and having a successful marriage.
And, contrary to the usual claims of “new urbanists” (themselves largely members of the older X and Boomer Generations) most Millennials want to live in the suburbs where the current housing crisis is most acute. According to a study by Frank N. Magid Associates, 43 percent of Millennials describe suburbs as their “ideal place to live,” compared to just 31 percent of older generations, most of whom still yearn for the smaller towns and rural settings of an earlier America.
Most Millennials already live in suburbs and enjoyed growing up in suburban settings surrounded by family and friends that supported them. A certain portion, of course, enjoy living an urban life while young, but most tell researchers that they want to raise the families many are about to start in the same suburban settings they grew up in.
Furthermore, Americans between the ages of 25 and 34, both Millennials and those on the “cusp” of the generational change from X to Millennial, represent a greater proportion of the overall population in the South and West than elsewhere. These are the very regions that suffered the most from the collapse of housing prices that stemmed from the mortgage financing scandals of the last few years. Unleashing this potential demand for suburban housing in these hard-hit areas would bring two huge benefits. It would stabilize prices for existing homes while at the same time boosting the prospects for new housing construction.
The challenge is how to enable the Millennial Generation to achieve its desire to own homes without reigniting the speculation and unsustainable financial leverage that triggered the Great Recession. Clearly, in the immediate future at least, the current excess of supply in the housing market should mitigate the risk of too much demand chasing too few houses. As much as they are criticized by the financial industry and its Republican allies, the recently enacted financial regulatory reforms, might also provide an additional bulwark against allowing the market to misbehave a second time.
But the biggest factor may be the lessons learned from experience. Millennials have borne much of the brunt of the Great Recession and tend to be keenly aware about the importance of living within your means Wanting a suburban home does not mean, that Millennials want McMansions; like earlier generations, especially their GI Generation great grandparents, they are likely to be cautious and frugal home-buyers. However, this frugality and caution does not translate into a meek acceptance or desire for a future as apartment renters, as some suggest will be the case.
In the short run, Millennials will not be able to engineer a turnaround all by themselves; most Millennials can’t afford much beyond the next month’s rent, let alone the down payment on a mortgage. Many are still living with their parents to avoid having to pay rent and the cost of a college education at the same time.
To address this part of the challenge, the federal government needs to do what it did to revive the moribund housing market in the 1930’s. The New Deal created today’s commonly accepted 30 year mortgages with a 20 percent down payment by making them a financial instrument that the newly formed Federal Housing Administration would insure. Before that landmark legislation, home mortgages were rarely offered for more than half of the home’s value and normally had to be repaid in no more than five years.
As a result that era’s civic generation (the GI or Greatest Generation) was able to afford single family homes with a surrounding tract of land ; an offer returning World War II veterans seized with alacrity. These houses now make up much of the country’s inner suburb housing stock. Today’s housing crisis requires a similarly radical reinvention of the basic home mortgage to be offered to those buying their first home. Under this proposal the length of the mortgage could be extended up to as many as 50 years, reflecting the increased life expectancies --- and longer working careers --- that most Millennials can expect to enjoy. Since no market for such debt instruments currently exists, it would be up to the federal government to create one through the process of reinsurance, just as it did in 1934.
To further encourage home buying by Millennials, the federal government should also provide incentives to financial institutions to swap out the principle of the Millennials’ student loan in exchange for a new loan, whose principle would be collateralized by the value of the real estate the former student would be acquiring. The student loan would be paid off as part of the mortgage, making Millennials better able to afford a home and freeing up additional discretionary spending that current worries over student debt curtail. Today’s lower housing prices today might make this package both attractive to investors and financially viable.
Many economists today argue against the whole notion of encouraging home ownership by anyone, let alone young Millennials. Some point out that when looked upon strictly as an investment choice, the value of a home rarely appreciates faster than the overall stock market. This type of analysis, which forms the basis for arguing against any federal policy that would further encourage home ownership, ignores the proven benefits to the nation that derive from home owners committed to the success of their local community. Voting participation rates among home owners, for instance, traditionally run higher than rates among renters, and neighborhoods of owners tend to be more stable places to raise children. More important still is what homeownership means to the nature of a property-owning Republic. Survey after survey shows that home ownership remains a central part of the American Dream and a central aspiration, particularly for immigrants and young people. A policy that works against this ideal presents a political risk that any politician should be wary of taking.
To restore this part of the American Dream, and to lift the worry of millions of Americans whose house is worth less than what they owe on their mortgage, the Obama administration must take bold steps to restore a vibrant residential housing market. President Obama, who built his winning margin in 2008 through an unprecedented mobilization of Millennial voters, is the ideal person to combine a plan for economic recovery efforts with meeting the aspirational goals of most Millennials to own their own home.
To save the housing market, and extend the recovery beyond the financial elites, America will need a new wave of home buyers. If the President works to tap this resource, he can begin to turn around the “stubborn problem” of the housing market and restore the middle class economy. If he does so, the whole country will soon be tweeting his success.
Morley Winograd and Michael D. Hais are fellows of NDN and the New Policy Institute and co-authors of Millennial Momentum: How a New Generation is Remaking America to be published in September and Millennial Makeover: MySpace, YouTube, and the Future of American Politics.