An Underappreciated Shift of Young Adults to Single-Family Living on Horizon

The importance of demographics to the overall housing market is widely understood and discussed, but is also often misinterpreted in our opinion. One area of heavy demographic focus today is on the “Millennial” generation and how its size, growth potential and living preferences might affect near-term housing demand.

With the Census Bureau having released updated population projections for the first time in three years, we delve deeper to compare the growth outlook for the younger side of the demographic spectrum. As we have noted before, there is no clearly agreed upon definition of Millennials and many age cohort breakpoints are arbitrary. Rather than rely on these inconsistent definitions, we summarize this analysis by 20-34 year olds that are in the early stages of household formation and 35-44 year olds that have likely matured into the second or third phase of their lives.

For perspective, in 2017, the Census Bureau estimated 20-34 year old population growth at 0.5%, the softest figure since 2006 and weaker than the overall adult population growth rate (0.9%) for the third consecutive year. Those facts alone will likely surprise many readers. Conversely, 35-44 year old growth was 0.8%, still slightly trailing the entire adult cohort but representing the strongest increase since 1999.

Importantly, this divergence is just beginning. According to population projections, the annual growth rate for 20-34 year olds is forecasted at 0.5% from 2017-20, 0.1% from 2020-25 and negative 0.1% from 2025-30. On the other hand, the 35-44 age cohort is projected to strengthen to 1.3%, 1.4% and 1.1%, respectively.

Beyond being interesting and likely at odds with many high-level perceptions of housing market observers, this is particularly relevant because there is a dramatic difference in living preferences between these two age cohorts. Over the last five years, we calculate that approximately 49% of 20-34 year old households are of the single-family variety, naturally rising from 31% for 20-24 to 46% for 25-29 and 59% for 30-34. For each age cohort, these ratios have been stable over the five-year period. Meanwhile, 46% reside in multi-family buildings with the remaining 5% in manufactured housing. In other words, the market share of single-family and multi-family is fairly equivalent.

For 35-44 year olds, this is not the case. Over the last five years, 69% have chosen single-family living versus just 25% for multi-family. Thus, a 35-44 year old is 2.7 times more likely to skew towards the single-family lifestyle. With outsized growth forecasted for this age cohort at the expense of weakening trends for younger peers, to us, it is clear that demand for single-family housing should outpace multi-family, even after considering any secular trends related to young adults forming families later in life. We do not believe that this is appreciated by the vast majority of housing market analysts and investors.