by 2016, home ownership among older millennials (25-34) had dropped by 18 percent from 45.4 percent in 2000 to 37 percent in 2016.
That is in the U.S., but he goes on to cite similar data for Australia.
So why has home ownership fallen? Largely due to regulations that have placed new affordable housing beyond the reach of younger Australians, something we also see in major cities in Great Britain, the United States, and Canada. In all these places, the main culprit has been “smart growth,” a notion that encourages the reluctant to move closer to dense urban cores and give up the dream of owning a home.
. . .In Sydney, planning regulations, according to a recent Reserve Bank study, now add 55 percent to the price of a home. In Perth, Melbourne, and Brisbane the impact is also well over $100,000 per house.
Clearly, Australia is not implementing the “right” kind of socialism.
I’m not sure where my kids are going to live when they become adults. Even the Atlanta area where we live is becoming unaffordable, despite appearing on lists claiming otherwise. There are many run-down high-crime parts of metro Atlanta that are bringing down the average for those lists.
I think younger generations will need to seriously consider lesser-known areas if they want to enjoy a well balanced lifestyle.
Also Kotkin: “Among the youngest cohort, those aged 18 to 22, over 60 percent see inheritance as their primary source of wealth as they age.”
If your parents own a house or two now it’s just inevitable, forty years from now, you will just become instantly rich. No matter what you do in the meantime.
It’s sad and funny at the same time because it’s simply your inexorable fate to get an extra million dollars or two added on to whatever your net worth is when you’re 60 or 70 years old.
That’s the future. If you worked a lot harder than your parents you could have paid off a house inside the city limits, and put up with a semi-reasonable commute into town. But if you don’t work at all you still end up owning a valuable piece of urban real estate anyway. Work really hard, or don’t. Both paths lead to the same end.
Build a business, pay a lot of taxes, struggle with all the legislative obstacles thrown your way, and your reward is a beautiful house. But if you don’t do anything like that, your reward is also a beautiful house.
Do you also find yourself behind the wheel of a large automobile, with a beautiful wife? Do you ever ask yourself, well how did I get here?
Do you ever ask yourself “What is that beautiful house?”
Do you ever ask yourself “Where does that highway go to?”
Do you ever ask yourself “Am I right? Am I wrong?”
You may say yourself, “My God! What have I done?”
Same as it ever was…same as it ever was…
Millennials are less likely to buy large automobiles, or learn to drive.
And then there’s delayed marriage. The beautiful wife knows what caesarstone is, and uses snug as a noun. Says “double height.” Goes antiquing.
No beautiful wife, consequently no style or grace. Wearing shoes with no socks in cold weather.
(The Appointment in Samarra was supposed to be the more central allusion. Gotta catch em all.)
Sounds like Rastignac’s dilemma. Rastignac is a character from Balzac’s Pere Goriot, who has to choose between obtaining a heiress or hardwork, he declines the plot for a heiress when he has to consider killing her brother.
The Baron de Rastignac thinks of becoming an advocate, does he? There’s a nice prospect for you! Ten years of drudgery straight away. You are obliged to live at the rate of a thousand francs a month; you must have a library of law books, live in chambers, go into society, go down on your knees to ask a solicitor for briefs, lick the dust off the floor of the Palais de Justice. If this kind of business led to anything, I should not say no; but just give me the names of five advocates here in Paris who by the time that they are fifty are making fifty thousand francs a year! Bah! I would sooner turn pirate on the high seas than have my soul shrivel up inside me like that. How will you find the capital? There is but one way, marry a woman who has money.
Extinguishing private home ownership is a feature and not a bug for the high and mighty planners of destiny, one might infer from reading the stuff Niskanen about eliminating the mortgage interest deduction, and bandwagon which Mercatus has now apparently jumped on (see the article Liz Warren’s housing bill by Emily Hamilton that Tyler Cowen linked to on Monday at Marginal Revolution). Apparently the would-be priest-kings know that urbanism has no diseconomies of scale and the Ringelmann effect is a total myth.
Thank god for the availability of exit while it lasts.
Joel Kotkin also has written about growth of second tier cities that have affordable housing. The kids can figure it out and are moving to such places in droves. Read the Castle Placement web site:
“Second-Tier Cities Are Becoming the Key Real Estate MarketsSecond-Tier Cities Are Becoming the Key Real Estate Markets
Demographic changes in smaller U.S. cities provide real estate investors with significant new opportunities.
Many secondary and tertiary cities are seeing population growth and becoming revitalized. Meanwhile, larger cities are growing slower. Over the next 5 years, PWC projects that “the populations of New York City, Chicago, and Los Angeles will grow at a rate of just 0.2%; while Phoenix, Charleston, and Boise will increase at the significantly faster rate of 1.6%. Much of the migration is from the coasts to the middle of the country, where job and population growth are booming, and a lower cost of living means that residents’ and investors’ dollars go significantly farther.”
Younger generations are fueling this migration trend. Approximately 35 percent of homes sold in the U.S are being purchased by young adults. Many are returning to their hometown to pursue a lower cost of living.”
The Chicagos, San Franciscos and New Yorks are Detroits in the making. The trick for the rest of the country is to not allow them to drag down the rest of the country. Smaller cities should learn from their mistakes and not fall into the trap of urban planning doctrine.
Nothing really new about housing being more affordable in less strictly publicly regulated areas: http://www.newgeography.com/content/002324-the-costs-smart-growth-revisited-a-40-year-perspective
Of course planners with skin in the game outperform their public counterparts as evidenced by the premium homes in gated communities are able to command relative to similar homes in non-gated communities. The chaos of public planning drives up the cost of ordinary housing as well as driving up the price of gated communities by increasing the latter’s attractiveness.
The only major building I see is on flat unoccupied land. Usually in the exurbs. Any building closer in is either 500k townhouse or 750k+ houses.
Problem is commuting costs from the exurbs probably eat up all the gains in lower real estate prices.
The sweet spot is if you can somehow get a job located in the suburbs, then you can live in the exurbs without a big commute.
I am still trying to understand how conservative libertarians think some housing deregulation is going to make land prices drop more than 10 -15%?
1) The big coastal cities don’t have a lot of Brown to build so usually property developers have to buy from existing landowners many of whom don’t want to sell. There is some building in SoCal here but the main issue is people.
2) I have wonder how investors are going act if they pay market prices and land drops by 10 -15% . Hard to make money a declining market. (And in SoCal we did have a big drop in prices and only after 4 years (2007 – 2011) did we see building again.)
3) I know we can look to Tokyo as an example of housing/apartment deregulation but again we have not seen a significant drop in the prices since 1994. (And in 1994 Tokyo was 50% higher than any other city in the globe.)
55% was the number for Sydney’s imposts. Call them imposts, duties, taxes, tariffs. But suppose the figure was 15%. Would an extra 15% hike on the minimum wage mean nothing has changed? A 15% tariff on TVs and cars?
Plenty of good land will open up when the universities go bankrupt. Brand new, really impressive buildings are under construction on every campus now, and they can be converted into aged care apartments. The campus soccer fields won’t even need to be dug up and built over. That’s where you’ll play golf.
Look at Sydney again for the typical cackhanded political fix. Something called the first home owners grant was promoted as a $10 000 gift to young people. In practice it added $10 000 to the sold price of every existing home.
I am still trying to understand how conservative libertarians think some housing deregulation is going to make land prices drop more than 10 -15%?
It may not, but it doesn’t need to. In the SF Bay area, for example, if regulations were changed to allow higher-density building in what are now vast expanses of single-family tract housing, land prices might even rise, but home prices (in the form of condos and town-homes) could drop all the same.
Not much cheaper, because construction costs per square foot increase significantly as you increase the height of buildings on landfill in seismically active area. When construction costs reach $750,000 a unit for “affordable” housing, there has to be a revaluation if all the building codes are really necessary for safety, and if they are, then you have to be prepared for a significant demographic to people who can afford the increased housing costs.
https://www.sfexaminer.com/the-city/funding-gap-plagues-treasure-island-affordable-housing-projects/
I think the general problem is correctly identified, but pointing to smart growth as the problem is yet another example of seeing a progressive boogyman argument in every topic.
Smart growth would require substantial increases of density in economically successful urban cores. That is not what we are seeing. Instead growth is slow and tilted considerably towards the high end of the market.
Affordable housing is by definition an attraction of lower margin or negative margin home owners. This is highly unappealing to cities and towns that are already struggling financially.
They have no incentives to solve these problems. Municipalities have learned to seek the highest margin homeowners they can get.
Kotkin. You don’t have to read him to know what he is going to say. “Smart” growth bad, suburban sprawl good, nobody wants to live in dense, urban neighborhoods, rather preferring single family homes. Conspiracy of the elites.
Things Kotkin never addresses:
1. Government financial incentives continue to favor home ownership in greenfield suburbs over renting in the dense urban core. I suspect these financial incentives dominate over planning decrees by a large degree.
1a. As a result, we don’t really know what people prefer, absent the subsidies. He takes it as a given that people prefer the suburbs, calling it a revealed preference.
2. Planning mostly happens at the local level. The suburbs themselves make it more expensive to live in the suburbs by making their own planning decisions: minimum lot sizes, etc. They face the voters and face their own incentives: so they do what they can to keep housing values up.
2a. The planners who want to live in a more ordered planet are the suburban planners and neighborhood associations. Witness the horror show of the vet who was fined by his homeowners association for having a non-conforming mailbox, one decorated with a flag.
3. Home ownership is overrated. For one, it is bad for mobility and dynamism. Home borrowership (a term I learned from ASK in an econtalk episode) is yet worse. Notice how freighted the term even is: home ownership. Smart leasing managers for urban buildings also know how to deploy the term. They say they have homes for rent. Never an apartment. What you really buy or lease is the right to occupy some ground, some timber, some glass, some other materials, and enough construction labor to keep the weather out and the HVAC in. A home, you make that by living there.
End property zoning.
Property zoning is the only way homeowners can protect themselves. Why don’t you address their concerns so that they don’t think every zoning planning is a life or death struggle for their families well being.
Do you mean by closing the racial (insert favorite leftist cause) gap?
In a typical zoning board meeting people are worried about:
1) The schools, which is to say the demographics of whoever will end up in the school attendance zone.
2) Safety (related to #1 but a somewhat different)
3) Local concerns such as crowding of public amenities or parking
I rarely see these concerns fairly addressed, and since the zoning board is the only mechanism through which property owners can get at these items, which are critical to both their property values and quality of life, its no surprise that zoning board meetings become high stakes affairs.
Headship rates are down. That is, fewer households are being formed. Homeownership is rising in the next age category up. So delay in household formation and home ownership may be temporary due to multiple factors some of which may be economic and some cultural.
Why will no one just point to the elephant in the room and say that it’s because Millennials don’t have any money? I see the center and the right perform leaps and bounds around the issue rather than naming it, the Boomers failed to create an economy which could support a large middle class.