When I first began working at the Business Journal, I was still living in my parents’ house. As I began earning more and saving, I started shopping around for apartments, but realized I’d have to pay half my monthly income to afford a place by myself. As the years went by and my income increased, rents increased concurrently. I felt like I couldn’t catch up. And I didn’t. Knowing that the trend would continue, I bit the bullet on a place out of my budget range, hoping that, if I got into the rental market, I might be able to get ahead of the curve. Or, more accurately, catch up to it.
When I began here as a staff writer in 2013, I was given the real estate beat. I soon learned that prices for single-family homes in Long Beach were increasing rapidly as the economy regained its footing from the Great Recession. But prices were still well below record highs, and interest rates were low. Although I didn’t have the budget for it, I knew that, in practicality, it was a good time to buy. But, like many Millennials, I didn’t have the savings at the time.
Over the years I’ve often interviewed Robert Kleinhenz, a Long Beach local and economist with Los Angeles-based Beacon Economics, about real estate. In 2014 and 2015, he observed that Millennials still weren’t forming their own households – i.e., moving out – in the numbers you’d normally expect 20 to 30-somethings to do. In 2016, he told me it was starting to happen. And, over the past two years, it finally has – just as California housing affordability hit its lowest level in 10 years. According to the California Association of REALTORS®, only 26% of Californians can afford to buy a median-priced, single-family home.
Housing affordability for Millennials is complicated by a number of factors. Those who are college educated are often saddled with student debt. Many entered the workforce late due to the recession, and are making less money than former generations did at the same stage in life. To that last point, a study of the Federal Reserve Board of Governor’s Survey of Consumer Finances – which surveys around 6,500 people – found that “Millennial net wealth is half as much as Baby Boomers when they were young adults” and that “wages have also declined 20 percent for today’s young workers.”
The study by the nonprofit Young Invincibles found an 8% decline in homeownership when comparing today’s Millennials aged 25 to 35 to Baby Boomers’ home ownership rate at the same age. Among Millennials without college degrees, the gap increases to 10%.
To get a feel for the real experiences Millennials are dealing with, I put out a request for comments to my Facebook friends, mostly Millennials, and received responses representing a breadth of demographics – although all of them are college educated. Here are a few, most of which are from people I haven’t heard from in years, I should add. I guess this topic really hit home.
A married high school classmate who lives in Tustin lamented that not only has she been unable to buy a home, but she and her husband have also postponed having children due to the cost of living in California. “One of the reasons we haven’t had kids is because we are still living in an apartment and barely affording it as it is,” she wrote. “We daydream about moving out of state purely so that we can find affordable housing.”
A college classmate of mine said that she moved back in to her parents’ home in Riverside after graduating so she could afford to obtain a master’s degree. “I have now been living with my Dad basically rent free for five years and still haven’t been able to save enough to put a reasonable down payment on a house,” she said. “And that’s not because I’m spending all my money on avocado toast. I put almost half of my income toward savings each month, but I started with no savings because of school.”
She continued, “Despite what many Boomers think, the economic climate today is just not comparable to the one they had. I’m not lazy. I was an A-student. I have a master’s degree. I paid off that degree by teaching for the university while I took classes and lived rent free at home. . . . I currently work two jobs trying to get my career off the ground. . . . Despite all of this, I am priced out of the housing market. So if I, an educated, debt-free, responsible, career-driven 27-year-old can’t afford a home, is it really a surprise Millennials are enraged by this topic?”
A married Long Beach mother responded that her family shopped to buy a home in the Long Beach area for the past year before finally giving up and moving into a rented apartment off of Retro Row. “A lot of all cash investors out there are snatching up houses,” she noted.
Student loans are still an issue for some. “I am finally moving tomorrow, after 2.5 years of living with my parents. I could not afford to move out of my house because my debt payments were 35% of my post-tax income, and I had been trying to kill off some of those payments, which would not have been possible if I had begun paying rent,” a sorority sister of mine recounted.
Renters who live with roommates generally reported that they were paying only one-third of their monthly incomes toward rent – a widely accepted benchmark for affordable rent. However, single respondents living in Southern California reported paying about half their income toward rent. Those in the Bay Area clearly have it much worse.
Another sorority sister, this one who currently lives out of state, had a housing secret to share. “My friend is illegally subletting my studio in San Francisco because it’s rent-controlled, and basically I’d be priced out if I didn’t hold onto it if we decide to move back in a few years,” she said. The “we” in the picture includes her fiancé. Referring to the San Francisco apartment, she said, “When I first moved in, 44% of my take-home pay went to covering just rent . . . in the worst neighborhood in terms of crime, poverty, etc. in the city. I still consider that place a ‘steal’ compared to prices in surrounding neighborhoods, and because it literally stole any money I could have put toward retirement.”
Two married couples were able to afford to buy homes only because they purchased out of state – one in Nevada, the other in Washington.
These are all college-educated, employed Millennials. If it’s this hard for them to afford to break into the housing market, just imagine what it’s like for everyone else. I’m sure many of you don’t have to.