New kids on the block prize homeownership, aspire for larger homes and more amenities. To better understand the difference in attitude between Gen Z, Millennials and Gen X towards homeownership, intergenerational living and saving for a down payment, PropertyShark conducted a generational survey on their preferences.
Like other economic sectors, the real estate market changes with the emergence of each new generation. Born after 1995, Generation Z may be similar to their Millennial siblings in terms of preferences for large urban centers, communal amenities, social media, and smart appliances, but when it comes to housing, major discrepancies appear. Raised by the cynical Gen X in a connected world with significant social, political, economic and environmental challenges, the first fully digital generation in history sees homeownership as a long-term investment and safety measure.
- Gen Z has its eye on homeownership, with 83% planning on buying a home within the next 5 years
- College debt is the #1 obstacle towards homeownership for Millennials and Gen Z
- Gen X chooses intergenerational living to care for relatives more often than any other generation
- Gen Z is willing to compromise on almost anything to keep costs down – but dreams of lots of space and amenities
- Gen Z to pose serious competition to Millennials on the real estate market
- Millennials are more realistic about their means, and the most pessimistic about the prospect of homeownership
College debt remains the #1 obstacle for Gen Z and Millennials
Millennials may be the largest category of homebuyers right now, but half of the Americans born between 1980 and 1995 still rent – just as many as their younger Gen Z peers. Burdened with the highest levels of student debt in history, Millennials who aspire to own their own place have been locked into the rental market far longer than previous generations.
This, in turn, has been pushing rental rates to the highest they’ve ever been – a boon for multifamily investors, but that rent burden coupled with college debt continues to keep many Millennials from saving enough for a down payment. In fact, 70% of Millennial respondents name one of these two reasons as the main roadblock towards saving for a down payment. An additional 16% consider credit scores the top reason.
Similarly, a third of Gen Z – many of whom have yet to graduate from high school – also see college debt as a major barrier towards homeownership, with nearly one third worrying about saving enough for a down payment. Coming of age in a relatively healthy housing market, only a few Gen Zers consider increasing home prices as the top hurdle towards homeownership (4%), while a third view credit scores, economic factors or job insecurity as the main barrier.
By comparison, 21% of Gen Xers see credit scores as the biggest hurdle towards homeownership, and a third named rising home prices and the economy the #1 roadblock. Student debt is a deciding factor for only 7% of Gen X respondents.
Gen Z to become serious housing market competition for Millennials
Whatever they may see as the most significant hurdle towards homeownership, more than 80% of respondents from all three generations expect to buy a home in the next 5 years. Part of more established family units and with stabilized careers, Gen Xers are the least likely to buy homes in the near future, while Millennials are the most likely – 87% of Millennial respondents expect to enter homeownership within 5 years.
Considering that the oldest of Gen Z are barely 23, it is noteworthy that a whopping 83% see themselves entering the real estate market within 5 years. Of course, the high numbers of the Instagram Generation who see themselves becoming homeowners in the near future may be attributed to youthful optimism and lack of knowledge, but that’s not necessarily the case. Currently, about 100,000 Gen Zers are homeowners, and of those, only 1.2% are more than 60 days late on their mortgage payments according to MarketWatch. That’s less than the 1.6% of Boomers and Millennials who are late with their payments and the 2.3% of Gen X mortgage holders who are running behind.
Millennials have the least positive outlook on homeownership
Even though the same number of Millennial and Gen Z respondents expect to pay more than $50,000 for a down payment – about a third of both generations – it’s Millennials who are most pessimistic when it comes to home ownership. On average, Millennials expect they’ll need $41,0000 for a down payment, about 10% more than Gen Z.
Despite this, about 40% of all respondents have less than $10,000 saved, while nearly 1 in 5 Gen Z and Gen X consumers have nothing saved. The same holds true for 15% of Gen Y. At the same time, 16% of Millennials expect they’ll need to save for between 5 and 10 years to afford a down payment, and only 11% of Gen Z expects the same time.
Millennials’ jaded attitude is also evident in their expectations of home size. Gen Y is the most realistic generation when it comes to square footage versus pocket size – they dream of homes 1,884 square feet in size, but report being able to afford 1,071 square feet less. For Gen X, the discrepancy between what they want and what they can afford grows to 1,142 square feet. While Gen Z can afford just a little bit less than Millennials – 803 versus 812 square feet – they’re dreaming of homes 1,278 square feet larger.
Gen Z’s aspirational lifestyle spurs amenities arms race
Millennials may have popularized tiny homes and micro-apartments, but Gen Z is dreaming big. The Instagram Generation hopes for homes 2,081 square feet in size on average, 200 square feet larger than their Millennial counterparts. Furthermore, space takes center stage for those born between 1995 and 2010.
When asked what they would be willing to compromise on when buying a home, space was the least likely aspect for Gen Z respondents to give up. This is understandable, considering that the overwhelming majority of this generation grew up in larger homes than any before, with many never having shared a bedroom. Furthermore, those that have moved from the parental home into rentals are mostly forced to share living space with roommates and want a return to more space and privacy.
While Millennials prize location above anything else – still keen on living the 24/7 lifestyle –, Gen Z would sacrifice location and an easy commute for space and amenities. For Gen Z, nearby entertainment options rank significantly higher than living close to friends or convenient access to green spaces. Then again, they are the first fully digital generation in history, used to the instant gratification of the online world, growing up mostly indoors and used to communicating with friends via devices as much, if not more, than through face-to-face contact.
This digital fluency also means that Gen Z prizes smart appliances and smart homes just as much as Gen Y. Considering the youth of Gen Z, the importance of smart systems is likely to increase as more of their cohort enters the housing market.
Although very aware of climate challenges, Gen Z still prizes parking space far more than energy efficiency in a home, quite the opposite of Millennials. In fact, even Gen X prizes energy efficiency more than Gen Z. Another significant shift in attitudes towards housing is evident in the diminished importance Gen Z gives to home offices.
While professionally established Gen X and start-up savvy Millennials consider home offices fairly desirable, Gen Z would rather have a home gym instead. After all, this is the first generation to grow up in the public eye, and effects of heavily curated social media presences, especially on visual-centric mediums like Instagram, have increased the importance of personal appearance and body consciousness.
Gen Z’s affinity for large metros is bad news for small-town America
The arrival of Millennials into the housing market ushered in a renaissance of urban living, and while starting families or more affordable prices have brought many back to suburban living, 40% of Gen Y remains set on city life – the highest percentage of any generation.
Gen Z, however, has an affinity for suburbia, with nearly 60% preferring it, followed by urban living with 30%. Paired with Millennials’ shunning of rural and small-town life, all signs point to the continued urbanization, while rural and small-town communities continue to thin out and vanish. By comparison, a quarter of Gen X respondents named rural living as their #1 choice.
Similar to Millennials, New York City remains a top destination for Gen Z, but Los Angeles becomes even more attractive, as does California overall. By comparison, L.A. does not appear among Gen X homebuyers’ top 10 choices.
View original article at Property Shark