This millennial tale cuts against the grain, in The Urbane Franchisor
Photo by Nicholas Upton
You’ve read it here, and certainly heard it elsewhere: Fancy millennials don’t care for the suburbs they grew up in and are willing to pay dearly to raise their heritage-breed chickens in peace—as close to downtown as possible. Futurists and demographers have doggedly predicted how this urban migration will hollow out the ‘burbs and revamp rusty cityscapes.
Hold that thought, though, as a new study is splashing cold Smartwater on this groupthink. According to Zillow’s research, “millennial home buyers share many preferences with their grandparents’ generation,” and almost half of them are buying in suburbs, while only 33 percent live in urban neighborhoods.
What’s going on here, and why is this important to franchising? As a crusty, aging millennial, let me submit that scores of young people are buying what they can afford rather than what they may want—and this ongoing, increasing indebtedness that’s skewing the housing market is the same factor that’s putting restaurant and retail sales on the skids.
Millennials are broke, their disposable income is entirely maxed out and, so far, nobody seems to realize the long-term outcome of this new American normal. Could it be that the millennial customer that every franchise in America covets is not as desirable as advertised?
Would restaurants and retailers do better by looking to additional groups for their customers?
Ben and Dawn Halpin, friends of the author, as they move out of their first home.
A stationary bunch
Let’s dive into Zillow’s unexpected findings from its Group Report on Consumer Housing Trends. First, the scale: at 42 percent of all U.S. home buyers, millennials are the largest generational group in the market after taking their sweet time settling down.
“Until recently, they were delaying homeownership, and it was difficult to know where they would actually purchase homes when they started buying,” the report stated.
My recent life experience backs this up as I’ve watched my friends uproot themselves two by two (me and mine, as well) from our beloved inner-city neighborhood and slowly move outward to get the space we wanted and could afford.
We all wanted to buy sooner than we did, and would have loved to stay close to downtown (cue the violins), but our own cost-benefit analysis inevitably brought most of us to the fringes of the core city or first-ring suburbs. Anecdotally, nobody in our crew opted for the cul-de-sac lifestyle.
Diving back to the research, it’s remarkable how stationary today’s younger buyers are compared to past generations. Of millennial buyers who moved in the past year, 64 percent stayed in the same city and only 7 percent moved to a different state. Maybe Drake needs to inspire the herd and sing about some California dreaming.
On the plus side, according to Zillow, “when millennials become homeowners, they skip the traditional starter home by choosing larger properties with higher prices.” In raw dollars, they’re paying a median price of $217,000 for approximately 1,800 square feet of space, which mirrors every other generation in the market.
Finding the elephant
Traveling to cities of a decent size, not just the top-tier all-stars, it is unmistakable that city centers are regenerating with new life. Empty lots are being built up, industrial areas are being converted to shops, breweries, offices and parkland—this urban renewal is real and likely to persist. After years of stalled new housing construction, suburban developments are also coming back to life, but not with that pre-recession sense of urgency. Even so, the consumer economy cannot find sure footing. Why?
Any industry dependent upon disposable income cannot overlook how many of today’s young people and aspiring homeowners are increasingly saddled with disturbing amounts of debt, and it’s getting worse every year. According to a recent analysis of data from the U.S. Department of Education by the Consumer Federation of America, 42.4 million Americans owe a total of $1.3 trillion in federal student loans—an average of $30,650 per federal student loan borrower. That’s up 17 percent since the end of 2013, when borrowers owed an average of $26,300.
On a lighter note, Berkshire Hathaway HomeServices latest research shows that “current and prospective homeowners—particularly millennials—remain optimistic about the state of the U.S. real estate market,” even as they expressed concern over the prospect of rising interest rates. Sixty-six percent of current and 63 percent of prospective homeowners view the market favorably. Presumably, they aren’t the ones competing against multiple offers.
Berkshire Hathaway HomeServices CEO Gino Blefari said it’s natural for prospective buyers to feel some unease, but countered by saying “it’s important to remember that rate increases are often the mark of an improving, healthy U.S. economy” and that mortgage rates are still near historic lows.
Debt is the culprit
We’re a long way past those gleaming post-war years where, young people are told, cheap houses and good-paying jobs were as plentiful as lumberjacks in Brooklyn.
Those good old days also meant young or middle-age families had equity that could be borrowed against for things like home renovations, cabins and boats, to name a few examples.
In today’s new arrangement, an incredible amount of money is flowing into universities and loan companies, rather than being spent on things like retail splurges, personal services, car payments and, of course, home buying.
So what does all of this talk of student debt and a tightening home market mean for the franchised world, apart from real estate companies? Even with consumer confidence at its highest level since 2000, even with rising wages and promised talk of a dramatic economic expansion, continued softness in retail, restaurants and elsewhere isn’t a mystery to many young people toiling to work themselves out of debt. And, as the saying goes, as housing goes, so goes the U.S. economy.
As our industry and others continue to scratch their collective heads about disappointing sales growth, I often hear answers like political uncertainty, changing preferences and the rising cost of eating out versus grocery shopping. Oh yeah, and Amazon. All of these are undeniably major factors, but we can’t ignore that other 100-pound gorilla.
Just ask your friendly neighborhood millennial.
Tom Kaiser, pictured on opposite page, is associate editor of Franchise Times and writes about urban tales in franchising in each issue. Send story ideas to firstname.lastname@example.org