Research Insights, March 15, 2016

Millennials: Delaying the Move from Gotham to Mayberry

Recently there has been a flurry of news reports touting the droves of Millennials moving to the suburbs. Although this may make for a great headline, the message is not representative of what is actually occurring in the housing market.

First, the cited survey by the National Association of Realtors focuses on Millennial homebuyers, not their migration patterns -- the latter includes both buyers and renters. Second, the key point in the survey’s lead stated that when Millennials do buy a home, they are in fact buying outside of the central city. This is not news given the general characteristics of central city pricing and substandard schools. However, the bottom line is not making the point that all Millennials are moving to the suburbs.

On this subject, we have a few thoughts:

1. Net migration of 18-34 year olds to the suburbs is nothing new.
2. What is new is the substantial decline in the rate of this cohort’s net migration to the suburbs (the difference between those moving from the city and those moving into the city).
   a. During the period 1999/2000, net migration of 18- 34 year olds to the suburbs was 1.9%. During the 2013/2014 period, this declined by more than half to 0.8%. 
   b. Because of this significant decline, even though the size of the 18-34 year age cohort increased from 64M to 72M between 1999 and 2014, the net number moving to the suburbs actually declined by 643,000 – essentially, more than half a million more Millennials are living in cities due to reduction in outmigration and population growth.
3. The reduction in net migration to the suburbs is primarily due to a decline in the percentage moving from the city to the suburbs.
   a. During 1999/2000, 4.1% of 18-34 year olds moved from the city to the suburbs. During the period 2013/2014, 2.7% made the same move, a 36% decline. Millennials appear to be delaying the move from Gotham to Mayberry.
4. “I won’t go!” Interestingly, the subset of 25-29 year olds seems to be the age group most resisting making this move.
   a. The rate of migration among 25-29 year olds from the city to the suburbs declined nearly 50% between the 1999/2000 and 2013/2014 time frames, falling from 4.8% to 2.5%.
5. As we wrote about in a research piece on our website titled, “Millennial Mirage”, this age group isn’t necessarily different in their housing habits, as they are having children and wanting to own homes, but they are delaying these events. This factor, along with the sheer size of the millennial generation, is creating a near-term demand tailwind. However, as the next generation coming behind the Millennials is smaller, expect that today’s demographic and lifestyle tailwind may very well become a headwind in the future. Many real estate investors are building for today’s demand and potentially are not planning for reductions in future demand. 

Summary: Contrary to recent reporting, Millennials are increasingly delaying the move from Gotham to Mayberry, creating a significant demand tailwind for urban multi-family housing. However, Millennials are only delaying their migration, and will eventually succumb to the call of the “burbs” as previous generations have in search of better schools and more space.