By Timothy L. Coyle.

To most builders, housing demand is meaningless unless it’s in their backyard or in some nearby community.  That is, most homebuilders don’t stray too far from the markets they know.  What we recently learned from the U.S. Bureau of the Census will be well received by those builders:  thanks to the interest millennials are taking in homeownership, the demand is there, and growing – in the suburbs.

This trend among millennials is occurring nationwide.  Data from the Census Bureau suggest this newest generation, which is now in or entering the homebuying market for the first time, is a dominant player in those markets – already boasting a 36 percent homeownership rate.  (Today’s national homeownership rate is roughly 64 percent of all households.)  

Indeed, millennials may be on their way to creating a profound bump in the homebuying market according to Census Bureau data.  Last year, millennial homebuyers registered the largest gains among all age groups.   Says Randy Noel, 2018 Chairman of the National Association of Home Builders (NAHB):

“Millennials are recognizing the benefits of homeownership and are eager to buy their first homes,” he said.

Obviously, this is good short-term news for homebuilders, generally, as it certainly means more customers.  It’s also heartening on a longer-term basis, too.  It signals that common among those of each new generation is a healthy appreciation for homeownership.  And, this emerging customer base – the millennial generation – definitely has that characteristic.

But, here’s the real news:  these new homebuyers are mostly looking for new homes in the suburbs.  Perhaps surprisingly, the Census Bureau data show that when most home consumers go shopping that in addition to choosing neighborhoods based on proximity to schools and other services they also tend to look for extra bedrooms and both front and back yards.

” . . . contrary to conventional wisdom, this generation is in the market for single-family homes in the suburbs as they look ahead to raising their families,” says NAHB’s Noel.

This is particularly good for local and regional homebuilders, who make up the bulk of the industry in California.  Why?  Because, although increasingly more expensive, it’s easier to build in the state’s suburbs and exurbs.  First, the cost of construction is more affordable than, let’s say, downtown where organized labor demands a premium for all new construction.

Secondly, the infrastructure to support new subdivisions – streets, sewers and lighting – is more easily provided; it just is. Thirdly and importantly, there’s less interference from environmentalists and neighborhood groups.  As the Sacramento Bee said about CEQA-inspired lawsuits:

CEQA has become not a protector of the environment, but a promoter of sprawl, pushing the housing market away from existing neighborhoods and onto farmland, where the cows don’t sue.

This not to say millennials aren’t managing expectations – or, due to a consideration for the environment – aren’t demanding more compact development.  Whether because of an environmentally consciousness or caused by increased costs – and a corresponding willingness to compromise on space – higher-density townhouses are becoming popular.  After experiencing a drop during the Great Recession, the share of new townhome construction has been rising since 2009.

That first-time homebuyers are choosing suburban settings over ones downtown doesn’t mean that townhouses don’t work on an urban footprint.  Of course they do.  But, homebuilders don’t want to build them there.  As noted above, it’s profoundly easier to build “where the cows don’t sue” than to build, say next to downtown transit hubs.

According to the Census Bureau, the nation’s largest demographic group – more than 70 million millennials – are poised to dominate the homebuying market in the months and years ahead.  That’s 12 to 15 million in California.  Clearly, the demand is coming.

Let’s rejoice at that news, then knuckle down and figure out how to meet this demand in the suburbs, the exurbs – and downtown.

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Originally posted at Fox & Hounds Daily.