From Downtown Dweller to Suburbanite: The Millennial Migration Begins

A USC housing expert’s study reveals that millennials have begun moving out of downtowns and into homes as the market loosens and the economy improves. “They weren’t going to live in two-bedroom apartments forever,” the researcher said.

Contact: Emily Gersema at (213) 361-6730 or gersema@usc.edu

Millennials in cities nationwide have flocked to fill downtown apartments over the past decade, but a new University of Southern California study shows the real estate market should brace for a major migration.

Last year marked a major turning point as the country’s urban centers reached “peak” millennial, said study author Dowell Myers, a professor of urban planning and demography at USC Price School of Public Policy.

“After more than a decade of growing concentration, we see that the millennial trend of increased downtown living has peaked out and is now beginning a decline,” said Myers. “This is a dramatic human interest story with great implications for cities and real estate investments.”

It’s also great news for residents annoyed by gentrification, Myers said.

The shift is part of a familiar lifecycle that other generations have gone through. “Millennials are beginning their long expected move up and out of their entry positions in housing and in jobs,” he said.

The study was published last week in the journal Housing Policy Debate. Myers examined population census data, the American Community Survey, the Current Population Survey, building permit data from the U.S. Census Bureau, and employment data from the Bureau of Labor Statistics, as well as surveys by the National Association of Realtors.

Millennials represent the biggest generation yet in the United States, with an estimated 83 million people. Planners and analysts had long assumed that millennials, defined for this study as those born between 1980 and 1999, were living in urban centers because they preferred to do so more than previous generations.

Myers, though, found circumstance, not preference, was the likely driver. He identified three cycles — one demographic, one economic, and one housing-based —  that converged in the 2000s to drive millennials into downtowns. Now, all three cycles have reversed their effects.

Clogged drain
He likened the effect on housing to a bathtub with a plumbing problem. Millennials poured through the faucet into young singles neighborhoods — normally a temporary staging ground. But the Great Recession of 2007 to 2009 closed job opportunities and new housing availability, blocking their progress through the normal life cycle, which usually involves climbing the job ladder and moving into better housing.

In effect, the drain was clogged. Millennials could not advance and their level rose. Three cycles had converged.

• The first cycle is simplest: Cities were flooded by this rising inflow of young people coming of age, Myers said. From a low point in 1978, the number of babies born each year climbed 32 percent by 1990.

The “peak” millennials born in 1990 turned 25 last year. Smaller cohorts of millennials will arrive at 25 from now on. “The tide has ebbed and fewer replacements will follow those who are moving on,” Myers said.

• Second is the employment cycle: Job growth was depressed during the Great Recession and the very slow recovery. More young people but fewer jobs had devastating effects, blocking the millennials’ entry into the job market. These forces prompted them into the “sharing economy” — living with roommates, or their parents or relatives — in gentrifying areas downtown.

Since then, the job market has loosened, Myers said. The unemployment rate for people aged 25 to 34 eased from 10.4 percent in 2009 to 5.2 percent last year — nearly as low as the pre-recession rate (4.8 percent in 2007).

Now, a smaller number of young people is turning age 25 just as jobs are opening up again. “This is a night-and-day reversal of the previous job competition, and so their economic progress should really start to accelerate,” Myers said.

• The third factor that hindered millennial progress was the housing life cycle. The housing market collapse, plus the Great Recession, flung homeowners into renting and decimated new home construction. This created extreme competition for rentals, which the Gen-Xers also had filled. With new apartment construction and home sales on the rise again, millennials have opportunities to move up.

“The millennials may have seemed frozen in time, but they are not living in a two-bedroom apartment forever,” Myers said. “The restrictions that blocked this housing lifecycle are slowly being removed, but this generation will require even more.”

Cycles reversed
Millennials, as they age, will partner up and will demand more space. Many will have kids, half or more will buy houses, and most — not all — will move to the suburbs.

“The big picture is now clear,” Myers said. “In sharp contrast to the late 2000s, post-2015, all three cycles that once conspired to flood cities with millennials and hold them there will have reversed their effects.”

He projected that the three cycles, in reverse, will draw in smaller cohorts of young people to replace older peers, accelerate job success and career mobility, and open up more housing options — both rentals and homes for purchase.

Housing supply needs to be increased to satisfy this generation that aspires to start their families and gain homeownership, he said. Rental opportunities remain the most severely constrained, with steep increases in monthly rents, until construction catches up, or when far more millennials and Gen-Xers turn over their rentals for first-time home purchases.

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Graphic: Baby boomers held onto their homes while Generation Xers and Millennials have dominated the rental market. (Courtesy of Dowell Myers, USC)