Millennials who want to purchase a house are locked out of coastal markets, and that’s a harmful long-term trend for economic growth.
In cities such as Los Angeles, rental rates have crept to “apocalyptic levels,” but the median house price is so high that millennials can hardly afford a down payment, Kerri Zane writes for Forbes. Millennials have started to earn higher salaries and their job experience has made them more marketable, but tuition and housing prices haven’t slowed. In large coastal cities, the economy might be strong and offer high wages, but the high cost of living makes it difficult for young Americans to gain a foothold and save enough for a down payment.
That has millennials looking away from Los Angeles, San Francisco, and New York City. For the American dream, millennials have moved inland.
In cities such as Des Moines, Iowa; Provo, Utah; and Pittsburgh, Pennsylvania, millennials control the housing market for home buyers. Those smaller, but robust, cities offer sizable populations, lower costs of living, and job opportunities. Their money buys more square footage, too. Buying a house in Houston is 50 percent cheaper than renting one, and a median home price of $162,784, millennials save money and can have a house large enough to start a family comfortably. In New York City, buying is marginally cheaper than renting, but the median home price is about $438,000, and the house will be much smaller than in Houston, The Atlantic noted.
For those more affordable cities, the current situation is great. They get an influx of young workers lured by good jobs and a low cost of living. They start families and anchor themselves economically and socially in the area. They advertise in expensive cities and brag about how much further a salary goes in their locale.
The downside to this shift is that more people flock to less-productive areas. That can be great for those areas when the incoming population increases productivity and pulls up the regional economy, but the overall effect is worrisome. National economic growth is lower than it otherwise would be.
Were the high-productive, high-cost cities to have housing stock that was more affordable, people would be better off. Firms with high productivity would pay higher wages, and economic growth would be stronger. Were it not for government policies that kept housing supply limited, the American economy would be almost 10 percent bigger. And that’s only if San Francisco, New York City, and San Jose loosened their housing restrictions.
Recovering regional economies and second-tier cities have a great opportunity with young Americans chasing cheaper housing, but long-term growth is threatened.
Millennials have to act fast, however. Housing prices continue to rise, which is good for homeowners, but not so much for those looking to buy one. Prices for the cheapest homes, too, are increasing, and faster than any other segment of the housing market. The crunch is on.
