They say that one generation doesn’t want what the generation before it had. Grandma’s antiques are newly cool, your parents castoffs are simply dated. It seems to also hold true with housing. If the last housing boom was defined by McMansions and suburban sprawl, the next might be defined by the urban consolidation and the return of the condo. Or it may be something entirely different.
Is a home of one’s own still the American dream? Yes, and no. Digital natives tend to be less interested in possessions and more interested in experiences. MassMutual’s study, The 2013 State of the American Family, showed that 38% of millennials say travel is part of the American dream. The dream of home ownership for younger people is at a far lower rate than Gen X and baby boomers.
We are also reaching a point on unaffordability in some cities. A Zillow study recently showed that while buying predominantly still makes more sense than renting, some of the areas that are most desirable to younger buyers happen to be least affordable. In Miami, Los Angeles, San Diego, San Francisco, Denver, San Jose, and Portland, Oregon for example more than half of the homes on the market are historically unaffordable by historical standards.
Another issue hampering home buying and household formation in general is student debt. It has been widely predicted that the next loan bubble is student debt. This has a direct impact on how secure people feel in regards to taking on another loan and of course it affects how likely a lender is to give a loan to a prospective buyer.
In an experience-driven economy mobility is highly desirable. The existing model of housing suited a world in which a person might stay at the same company in the same town for at least a decade. The general rule of thumb for residential real estate investing is that you have to stay for at least five years to get a decent return. This may not be desirable or feasible for people who change jobs, either by force or by circumstance. It can be a limiting experience for many.
So what’s next in real estate? There are a few paths that have already been started including crowdfunding for both residential and commercial projects; micro apartments in buildings with amenities and shared community space; and the rise of peer-to-peer rental options such as AirBnB. The core disruptions are centered on a spirit of sharing and a desire to exclude the middleman. How these concepts will change a larger industry known for its resistance to change remains to be seen.