The most pressing problem facing the housing industry today is the tight inventory, and according to Realtor.com, millennials may be partly to blame.
As many young potential buyers move into cities and away from the suburbs, housing construction has been notoriously weak. Cities like New York, San Francisco, Boston, and Los Angeles have seen their suburban areas shrink.
According to Jed Kolko, Chief Economist at job-search site Indeed and senior fellow at the Terner Center for Housing Innovation at the University of California, the amount of young people living in the Washington D.C. urban area increased by 8.6 percent between 2000 and 2014 as the preferences of young people change.
The difference is younger generations are choosing better location over better homes, according to BuildZoom Chief Economist Issi Romem.
Builders are producing less housing overall as they shift from cheaper suburban areas to “trendy” urban markets. Builders have had to focus on high-end city housing for high earners, leaving young people just starting out behind.
Realtor.com calls this “one of the most vexing aspects of the housing recovery.” Prices for new homes are steadily rising even though there are fewer being built. But as millennials get older, starter home demand begins to bounce back. BuildZoom analysis shows that in metro areas where land is less expensive and there are fewer land-use restrictions, starter homes are on the rise.
In Austin, Texas, new residential sales over 20 miles away from city center rose 12 percent between 2000 and 2015. Romem states that this shows how looser land-use rules lead to increased home sales, making it economical for builder to make starter homes.
“Do you care about preserving things the way they are, so that only wealthy people can continue buying in, or do you want to [encourage more density], so that housing is more affordable for everyone?” he asked.