Each generation has its unique attributes and faces its unique challenges. Generation Y, which consists of young people from their late teens to their early 30s, is no exception. But two facts in particular distinguish it from any previous U.S. generation: it is by most accounts the largest in U.S. history, consisting of some 80 million people or more, and it is by far the most economically challenged since the Great Depression. Together, these two facts point to a tough challenge for this group—finding housing it can afford.
Today, an unprecedented number of gen-Yers are responding to this housing challenge by living with parents, with roommates, or in university dorms. Indeed, U.S. household formation has dropped to some 400,000 a year, a mere quarter of the pre-recession norm of 1.6 million. (The drop in immigration has caused some, but by no means all, of this remarkable shift.)
Why is gen-Y, now at the prime age for forming new households, staying at home, with roommates, or at school? For one, over 30 percent of this cohort, by some estimates, is unemployed. No job means no money for an apartment or home of one’s own. And while more members of this group have graduated from high school and college than those of previous generations, they are also carrying more school debt—an average of $23,000 per person. Nor is this group saving, but instead is carrying large credit-card debts.
Another bit of bad news comes from studies of past recessions, which show that it can take people coming of age during a recession ten years or more to recover financially. This recession, though declared officially over by economists, is going into its fourth year of high unemployment and low job creation, and wages are actually falling. This suggests that generation Y has a tough road ahead financially and may not get back on its feet until well after this decade is over.
When asked how they want to live, though, members of generation Y responds much as did previous generations. Many want to rent for a while, but a high percentage of gen-Yers want to own their own home eventually. These are the first-time homebuyers needed to restore the housing markets to stability, clean up the overhang of vacant and foreclosed homes, and stimulate new housing production, now stalled at 600,000 a year—one third of pre-recession levels. Financially, however, most of generation Y is in no position to buy a home now nor will be for years to come.
Keep in mind that this is also the next generation of the workforce. Gen-Yers are the entry-level employees needed to keep businesses growing, innovating, and producing. Will they be able to afford to live near jobs now or in the future? Without savings for a downpayment and with parents needing to rebuild retirement accounts, when will they be able to afford to buy a home? With wages falling, will they be able to afford market rents?
This is an issue facing every community that wants its economy to grow in the years ahead. Generation Y is the most mobile generation ever; its members can look for jobs anywhere in the country and the world by simply clicking on the internet. While the jobs come first, this generation is also looking for a good quality of life, which means to them, among other things, housing that is affordable, attractive, and located in walkable neighborhoods near jobs, services, and amenities. Gen-Yers are not looking to move to the now-cheap housing in the foreclosure-devastated exurban culs-de-sac even though that is where housing is most affordable now.
Any city or metropolitan region that cannot provide affordable, walkable, and attractive neighborhoods in which gen-Yers can afford to live will simply lose the best of them to those regions that have such neighborhoods. If they have to “drive ’til they qualify,” as the workforce before them has had to do, gen-Yers are more likely to simply fly off to another city or region.
Simply put, generation Y represents the future of every region’s economy. Attracting and keeping this group requires careful planning and a commitment to develop new mixed-income housing in mixed-use neighborhoods close to the central city and to the surrounding suburban town centers. The time to do this is now, while gen-Yers are still living at home, because when jobs for them do come back, the pent-up demand they represent will move quickly to those regions that are ready for them.