Residential Magazine

A housing crunch may leave Generation Z in the lurch

By Jim Davis

Don’t look now, but Generation Z buyers are beginning to enter the housing market. For the foreseeable future, millennials will make up the largest share of homebuyers, but a CoreLogic report from this past October found that 8% of first-time homebuyers during the first eight months of 2021 were members of Gen Z.

Meanwhile, the National Association of Realtors (NAR) pegged Gen Zers as a smaller sliver of the market — only 2% of all homebuyers for the year ending in June 2021. The discrepancy between the two numbers is that NAR defines Generation Z as anyone born after 1998 while CoreLogic defines it as anyone born after 1996.
Either way, the number of people from Generation Z who want to buy a home will only go up. And it probably couldn’t be a worse time for this cohort.

It could be that Gen Zers learned from generations ahead of them.

– Jessica Lautz, vice president of demographics and behavioral insights, National Association of Realtors
“They’re coming of age in what is undeniably the most expensive housing market in history,” says Rick Sharga, executive vice president of market intelligence for Attom Data Solutions. “It’s a time when both prices and interest rates are going up simultaneously and there’s almost no inventory available, especially at the entry level.”
Millennials lagged behind previous generations in terms of when they started buying homes, Sharga says, and the same will likely hold true for Gen Zers. It will still take six or seven years before Generation Z starts to comprise a meaningful share of the home-purchase market, says Jessica Lautz, NAR vice president of demographics and behavioral insights. Younger millennials and older Gen Zers who are buying homes today are typically receiving significant help from their families.
NAR estimates about 45 million Gen Zers are spread over a decade and about 88 million millennials are spread over two decades. Millennials, who are the largest generation in the U.S. today, will buy the lion’s share of available homes over the next decade, Lautz says.
“Looking at the size of the millennial generation — just knowing that once the inventory is built, they will want to purchase that new build — what will be left for the next generation?” Lautz says.
The biggest obstacle to homeownership for Generation Z, or any generation for that matter, is the lack of available homes to own. NAR estimates the deficit in the U.S. at about 4.5 million to 6.5 million units, Lautz says. And baby boomers are proving to be persistent about aging in place, meaning that there are fewer homes available for younger generations.
New construction is the simplest way to solve the nation’s housing shortage, says Selma Hepp, deputy chief economist at CoreLogic. But homebuilders face so many concurrent problems. There’s a labor shortage that’s exacerbated by immigration constraints. There are supply chain slowdowns. And there are regulatory and zoning issues.
Additionally, more people are purchasing residential properties as investment vehicles while some builders are constructing new single-family houses with the sole intent to lease them. Getting new-construction efforts rolling will require a heavy lift.
“There’s not a universal solution,” Hepp says. “There are so many components and each one of them needs to be addressed.”
Even if new construction increases, it’s no guarantee that the homes that get built will be affordable for first-time buyers. “If you’re a builder putting up a limited number of homes, Business 101 suggests you make those relatively expensive and profitable rather than less expensive and less profitable,” Sharga says.
Still, Generation Z has some things going for it. Interest rates are rising but will likely hit a ceiling, Hepp says. “They’re going to top out at some level,” she says. “Maybe they top out at 5%. They won’t get back to those 1970s rates.”
Many younger millennials and older Gen Zers have been living at home during the COVID-19 pandemic, saving money they would have otherwise spent on rent, Lautz says. In a study of student debt, NAR found that Gen Zers are aware of how encumbered millennials have been by educational expenses. This may mean that they will borrow less to achieve education-related goals.
“Gen Zers were actually more aware of their college costs going in than millennials when they entered college,” Lautz says. “So, it could be that Gen Zers learned from generations ahead of them.”
Sharga says that research he’s seen shows that roughly one quarter to one third of all jobs will remain at least partially remote. This could mean that Gen Zers will move farther from city centers and will make only a couple difficult commutes each week.
He also says that Gen Zers hopefully won’t be entering the job market during a recession like millennials did in the late 2000s. This will help their finances earlier in their careers. And Gen Zers won’t be burdened by the psychological trauma of that moment in U.S. history.
“Hopefully, Gen Z folks will continue to look at things in terms of having their financial houses in order before they enter homeownership,” Sharga says, “but they may not have the same trepidation about entering the market as millennials, because they didn’t really experience that foreclosure crisis firsthand.” ●


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