Housing -The Millennial Pipe Dream

“Like generations before them, the demographic cohort known as the millennials … has shaped a number of social and cultural aspects, including fashion, technology, and politics,” wrote The Fed. “One area where they’re facing challenges in leaving their mark, however, is the economy.”

Twenty years ago, the median price of a regular condominium settlement in an American city was $108,900. Now, the figure is at $337,200. Even if one accounts for inflation, the price has still risen astronomically, despite the fact that the current working demographic cohort, the millennials, have exhibited an involuntary disinclination towards homeownership, which is reflected in the shift of the median age of homeownership from 29 in the 1970’s to 33 presently. This global behavioural shift is attributed to more than just the generation gap.

One would assume that it was the Boomers and the Gen Xers who were the hardest hit when the housing bubble burst a decade ago, for they lost the jobs and bore the fury of the deflated real estate and stock market. But the millennials, then aged between their pre-teens to early 20s, had their average age of graduation in 2010, right in the midst of the global economic meltdown. Naturally, when they joined the workforce, the job market was rough, with lower wages and puny scope for raises. Additionally, there was a lack of income stability, since it’s common for most millennials to switch jobs at least three times in the five years that follow graduation. 

This, however, is not entirely a question of affordability, for, even comparatively better-off millennials, earning over $50,000 a year, have chosen not to purchase a home. Real estate is not an ‘impulse’ purchase. Many young graduates already have the burden of student loans that overwhelms the benefits of going to college, and upsets the debt-to-income ratio and their credit score, despite having a reasonably good income level. As a result, it becomes harder for them to acquire loans with easy down payment terms. Moreover, post the foreclosure of millions of American homes during the Great Recession, new lending reforms were implemented by most of the developed nations, like the Dodd-Frank Act in the USA, which further exacerbated the down payment requirements. 

Another survey found that the millennials had an average tipping point of at least five years of rental residentship before they would decide to purchase a home in the area, and by this logic, even the older segment of the millennials would have made a decision to own a home post-2013. And, at that point, the easing of the global economy had begun to recede, and rate hikes were soon on the table, thus making Adjustable Rate Mortgage an unattractive option, due to the loss that would accompany the refinancing process. These economic fluctuations at such a delicate transition point in life definitely had a subconscious impact on the minds of young millennials, who have turned risk-averse. Consequently, the tendency of careful considerations has accompanied their decisions in most avenues of life, ranging from commitment to a family to an investment like real estate. The Boomers have accused the ‘crypto-crazed’ millennials of destroying the housing markets, when in fact, they are becoming victims to the vicious cycle of the renting market. As a result of the unaffordability, a greater number of millennials are moving to the rental space, pushing up the demand and thus the rents, which then lowers their savings, and further delays homeownership.

But it would not be fair to entirely blame the Great Recession for the modern housing crisis. Urban sprawling is at its peak. Currently, 54% of the global population lives in cities, and another 2.5 billion people are expected to be added to this figure by 2050. The scarce land contributes to the skyrocketing prices of accommodation, and there is a limit to which the cities can grow vertically. This limit is not merely a variable of the architectural abilities but also depends on the return factor. While most big cities have the ability to build high skyscrapers, it becomes unaffordable once the government weighs in all the indirect costs. When you graph the marginal construction costs against the number of floors on the abscissa, it gives out a familiar U-shaped curve, whose viability lies at the bottom-most point (only cost is considered, because the return from public residential projects is one-time and only aims to cover costs). Another reason that tall buildings are being avoided, is the NIMBYism (Not in my backyard) displayed by the existing residents, who oppose progressive developmental projects, citing how it would contribute to greater pollution, rising traffic and would deflate the price of their properties. 

The working population, largely composed of millennials, battles the crisis not only in the usual suspect cities like NY, Tokyo, Hong Kong, London, Mumbai etc., but also has to face it in other smaller cities like Dubai. The crisis takes an especially risky turn when it comes to the developing nations, where a combination of bureaucratic red tape and rapidly growing population clamps people down to an impoverished existence. Take the example of Mumbai, India, about which the Scottish urban planner Patrick Geddes had famously remarked, “Mumbai is not housing its workers, it’s warehousing them”. Nearly 52% of this city’s population lives on 9% of its land, in informal settlements called slums. Many of these slum-dwellers are educated people working in MNCs, who can afford monthly dine-ins at the most high-end restaurants in the city, but not a decent settlement. The slums appear to be a poverty problem for Asia, when they actually are a real estate problem. The crisis is mainly associated with two flawed policies. The city has an unnaturally low Floor-Space Index (FSI) at 1.3, while cities in other Asian nations flourish at an average FSI of 7-8. The FSI is the ratio of the floor area to the plot area. So an FSI of, say, 2, would allow us to construct two stories if the process includes the entire plot area, and four stories if we leave half the plot vacant. The next flawed policy for Mumbai is one that has been famously dubbed the easiest way to destroy a city, next only to a bombing - rent control. The rent is frozen at pre-Independence levels, robbing landowners of any incentive to rent it out to tenants in fear of encroachment. Such a policy often results in the formation of dilapidated ghost towns, which has happened to many cities of China, Turkey, and the like. 

Clearly, governments all over the world have come to the rescue of the working millennials with rash and hasty policies like rent control, which have only exacerbated the situation. The lack of attention and forethought that a basic amenity like housing faces globally is an important contributor to a class divide in modern cities, resulting in other socio-economic issues. Shirish B. Patel, an urban planner, in his piece in the Economic and Political Weekly, had perfectly summed up the situation of the working class millennials of the cities with the analogy of a big ship, which has many workers, who perform every petty to intricate task on board, throughout the day, for which the captain pays them well, but does not allow them to spend the night on the ship. If they manage to survive the night in water, without getting eaten by the sharks, they must report to work the next morning. If not, there are plenty of fish in the sea.


Riya Kaul

Studying economics at Delhi University. That's pretty much it.

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