America’s smaller cities can solve the millennial homeownership deadlock

January 26, 2022, 5:12 PM UTC
The work-from-home contingent need look no further than Rochester, Buffalo, or Syracuse, where they’ll find high-quality housing stock at affordable prices.
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Home prices—up 19.08% percent year-over-year—are continuing to surge, according to a recent S&P CoreLogic Case Shiller report. First-time buyers accounted for only 29% of existing home sales, according to the National Association of Realtors’ October report.

People renting in large metropolitan areas are under strain—U.S. Census data collected in the first two weeks of October 2021 showed an estimated 12 million U.S. adults were falling behind on rent payments.

U.S. millennials are facing multiple challenges in becoming homeowners, our recent research at Legal & General shows. The study, U.S. Millennials and Home Ownership – A Distant Dream for Most, showed that while COVID-19 posed an obstacle to millennials’ home buying plans (12% of those we surveyed completely abandoned their buying plans because of COVID-19), the pandemic was just one of several obstacles limiting their ability to afford a home.

Years of stagnant wages, high student debt, health care debt, and older generations being in a better position to bid for the starter homes are some of the obvious obstacles to millennial homeownership. However, the underlying problem is a lack of affordable housing.

The generation that’s currently 25 to 40 comprises only 47.9% homeowners, compared with 69% of Gen Xers and 77.8% of Boomers. Statistically, our research confirmed that millennials are more likely to want to live in big cities—the very cities where 35 to 40% of people are experiencing housing insecurity.

Now, with the ongoing pandemic extending circumstances of financial insecurity, the generation we’ve been studying may be on the verge of a massive, collective change of mind. The pandemic has created a tension between necessity and opportunity, necessity being the unaffordability of big cities, and opportunity being the discovery that we can work just as effectively from home. At Legal & General, we have always supported working from home, for example for our U.S. underwriters. That home doesn’t need to be in the biggest, most expensive cities.

Thinking through the implications of this could solve a lot of problems and reverse what half the U.S. millennial generation seems resigned to—namely, that they’re never going to become homeowners.

Millennials are rethinking their location

Some keys might be found in the gig economy and culture of innovation now codified by work-from-home mandates. For decades if not centuries, young people have moved to big cities, following the path to promising careers. But now, instead of people moving closer to where the jobs are, WFH moves jobs to them—including where they want to be.

This new reality has potential implications for towns and cities that don’t happen to be New York, Los Angeles, or San Francisco. If our research data is in any way predictive, it could have some interesting ramifications for geographic movement, urban renewal, and wealth building.  

While nearly half (47%) of our millennial survey respondents said the pandemic set back their homebuying plans, even more (68%) told us that the pandemic had had some impact on their thinking about where they could live—whether urban, suburban, smaller city, or moving back to their hometown.

One in five were strongly influenced by COVID-19 to rethink their location. It’s reasonable to assume that these numbers could increase, given the uncertainty of back-to-office dates and protocols. More than a quarter of millennials already living in big, expensive cities like New York and San Francisco reported that they were ready to reconsider their current location.

The work-from-home contingent need look no further than Rochester, Buffalo, or Syracuse, where they’ll find high-quality housing stock at affordable prices. And that’s not even taking into account the massive migration of tech companies from California to Arizona and Texas, where tax laws are more favorable and living costs are lower.

The U.K. as an example

Interestingly, these results were very similar to our U.K. data. Our latest Rebuilding Britain Index turns up that, even with the U.K. government’s active Build Back Better program, much more could be done in the ex-London reaches of Great Britain to level up economic prosperity throughout the country.

While there are some real roadblocks to homeownership, there are also practical, on-the-ground ways to unlock solutions. At Legal & General, we have completed several U.K. projects that involved deep, long-term investment in revitalizing smaller, more affordable cities in an effort to attract—and reward—this contingent of young aspiring home buyers.

It’s time to focus on America’s smaller cities and give housing-insecure urbanites a different, more affordable option.

Homeownership, as a cornerstone of building wealth, is one of the straightest paths to financial inclusion. Viewed through the lens of inclusive capitalism, we can take a lesson from this study on the affordability of housing in places where young Americans might want to live.

When the tenuous balance of work location and residential life has been upset to this degree, it’s time to look at what it is about big cities that’s so compelling—and whether that is ultimately sustainable, or transferable elsewhere.

Currently a member of the Prime Minister’s Build Back Better and Levelling Up Councils, Sir Nigel Wilson was appointed Group Chief Executive of Legal & General in 2012, after joining as Group Chief Financial Officer in 2009. He won the ‘Most Admired Leader’ award at Britain’s Most Admired Companies Awards 2017, for Management Today. He was recently added to H.M. Queen Elizabeth’s New Year’s honours list.

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