Millennials on the Move: Urban

April 09, 2015
Economics Group
Special Commentary
Sarah House, Economist
[email protected] ● (704) 410-3282
Erik Nelson, Economic Analyst
[email protected] ● (704) 410-3267
Millennials on the Move: Urban-Suburban Divide
Executive Summary
With a population of more than 80 million, Millennials are the largest generation in U.S. history.
The sheer size of this age group has the power to reshape markets, similar to their Baby Boomer
parents. One key market for the economy that hangs in the balance of Millennials is housing. The
hurdles to household formation and homeownership—including record levels of student debt and
sluggish income growth—have been widely discussed, but against this backdrop looms the
question of where Millennials want to live. 1
Millennials have been frequently been portrayed as preferring urban living relative to prior
generations. Forgoing car ownership for ride sharing and public transportation, Millennials have
been depicted as wanting to live close to work and amenities such as restaurants and shopping.2
Some surveys and commentary, however, suggest that they will not stay in the city center forever,
and will eventually move out to the suburbs in search of more space and/or less expensive
housing.3
Millennials are
often portrayed
as preferring
city life.
Using data from the Census Bureau’s Current Population survey, we look at moving trends to see
if in fact Millennials are forgoing the suburbs and flocking to the city. We find an increase in the
rate at which Millennials are moving into cities, but that the pace still trails the rate at which
young adults are moving to the suburbs. In other words, Millennials who move into a different
type of area are more likely to move to a suburb than a city. This is particularly true for
Millennials in their 30s, where moving rates to the suburbs have picked up noticeably the past
three years. The gap between suburban and city moves for younger adults, on the other hand, has
narrowed in recent years, indicating preferences are shifting more toward city-living.
One thing that has changed for young adults relative to a decade or so ago is their primary reasons
for moving. Today’s young adults are less likely to move in order to get into a better
house/apartment or neighborhood. Instead, they are more likely to move in search of cheaper
housing or job-related reasons, not unlike older adults following the weak income growth and
tight housing credit of recent years. Another clear difference between today’s young adults
compared to those at the turn of the 21 st century is that Millennials are moving less frequently.
This trend is also not unique to young adults, and suggests Millennials’ moving decisions are
more reflective of the current economic environment and not a fundamental shift in the way this
generation views housing.
The need for cheaper housing has likely supported Millennials’ moves to the suburbs. Although
the rate at which young adults are moving to cities has picked up in recent years, more are moving
to suburbs, which suggests Millennials may not be that different from previous generations of
young adults. As indicated by the recent increase in 30-34 year-olds moving rates to the suburbs,
once Millennials begin to settle down, their desire for space at an affordable price seems to
transcend the generational divide.
See Millennials in the Economy VIII: Home Sweet Rental? Feb. 17, 2015, which is available on request.
“Millennials: Breaking the Myths.” The Nielsen Company. Jan. 27, 2014.
3 “Generation Y Prefers Suburban Home Over City Condo.” The Wall Street Journal. Jan. 26, 2015.
1
2
This report is available on wellsfargo.com/economics and on Bloomberg WFRE.
We find that
Millennials are
more likely to
move to suburbs
than cities.
Millennials on the Move: Urban-Suburban Divide
April 09, 2015
WELLS FARGO SECURITIES, LLC
ECONOMICS GROUP
Cities, Suburbs, and Everything Else: A Note about the Data
To look at moving patterns among Millennials, we use data from the Census Bureau’s annual
Current Population Survey (CPS). Millennials are typically defined as those born from 1980 to
around 1998. In this note, we focus on those born from 1980 to 1996, who as of 2014 would be
18-34 years old. The CPS data not only include the number of movers in a given year, but also
reasons for moves and location flows, i.e., the type of area from where and to which the
population moves. Locations are categorized into three types: principal cities, suburbs and nonmetro areas. Principal cities are either the largest or one of a few large cities within a metropolitan
area and are densely populated and developed.4 Suburbs are the remaining areas of a
metropolitan area, i.e., not big cities, but still closely tied economically and socially to a major
city. Non-metro areas are the residual, constituting micropolitan and rural areas.5 While the
delineation between what constitutes an urban versus suburban are likely to be more nuanced
than the Census Bureau’s breakdown, these data still provide detailed insight into the reported
trends of Millennials increasingly urbanizing.
Concrete Jungle or Backyard Jungle Gym?
Discussions of a resurgence in city living have grown in recent years as population growth in
urban areas has generally outpaced growth in the suburbs. Millennials are often looked at as a
cornerstone of this movement, preferring to live close to work and amenities. While the
population of Millennials living in cities has grown ahead of those living in suburbs since the
recession ended, the difference has actually been more muted than within the overall population
(Figure 1). Moreover, the picture changes when looking at subsets of this generation, with the
population of Millennials ages 20-24 and 30-34 increasing faster in suburban areas. Even with
some strides in recent years, Millennials of all ages are still more likely to live in the suburbs than
a major city or a nonmetropolitan area (Figure 2).
Figure 1
Figure 2
Population Growth by Type of Location
Population of Millennials
Percent Change 2010-2014
Ages 18-34, 2014
10%
10%
5%
5%
0%
0%
-5%
-5%
City
38%
Suburb
49%
-10%
Principal City
-10%
Suburb
Non-Metro
-15%
-15%
Total
Population
Total
18-34
Ages
18-19
Ages
20 - 24
Ages
25 - 29
Ages
30 - 34
Non-Metro
13%
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Most Millennials
who move
relocate to the
same type of
area.
Where Millennials currently live is in many ways reflective of where they have previously lived.
Therefore, in order to determine whether the location preferences of Millennials have changed in
recent years, we find it useful to look at the location decisions of young adults who actually move.
The vast majority of Millennials who move relocate in the same type of area. For example,
70.2 percent of city-dwellers who moved in 2014 ended up in either the same city or another city.
Of the 29 percent of Millennials who moved to a different type of area last year, they were more
likely to move to a suburb than a city. In 2014, 16.3 percent moved from a city or non-metro area
Prior to 2004, the Census used “central cities” rather than “principal cities.” Both capture the largest
city in a metropolitan area as well as the possibility of a few others that meet specific population and
commuting thresholds. Generally these cities did not change between periods.
5 For further explanation and definitions of principal cities and metropolitan and micropolitan areas, see
http://www.census.gov/population/metro/about/.
4
2
Millennials on the Move: Urban-Suburban Divide
April 09, 2015
WELLS FARGO SECURITIES, LLC
ECONOMICS GROUP
to a suburb, compared to 13 percent moving from a suburb or non-metro area to a city (Figure 3).6
By the same token, suburban Millennials who move are more likely to stick with suburban living
compared to the share of city Millennials who move to another city residence (Figure 4).
Figure 3
Figure 4
Moving to New Type of Area
Moving to Same Type of Area
Percent of Movers Ages 18-34
Percent of Movers Ages 18-34
24%
24%
80%
80%
78%
78%
76%
76%
74%
74%
72%
72%
70%
70%
68%
68%
66%
66%
To Suburb from City or Non-metro: 2014 @ 16.3%
To City From Suburb or Non-metro: 2014 @ 13.0%
20%
To Non-metro from City or Suburb: 2014 @ 2.5%
16%
20%
16%
12%
12%
8%
8%
4%
4%
64%
64%
Moving Within or to New Suburb: 2014 @ 71.5%
Moving Within or to New City: 2014 @ 70.2%
62%
62%
Moving Within or to New Non-Metro: 2014 @ 70.8%
0%
0%
00
01
02
03
04
05
06
07
08
09
10
11
12
13
60%
14
60%
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Although the rate at which adults age 18-34 have been moving to the suburbs has been relatively
flat over the past eight years, the aggregate numbers mask varying trends between older and
younger Millennials (Figure 5). The rate at which 30-34 year-olds are moving to the suburbs has
picked up in recent years and is now the largest share in over a decade. The rise suggests that once
Millennials begin to settle down, the suburbs remain an attractive place to reside. In contrast,
25-29 year-olds are moving to the suburbs at a noticeably slower rate. This may be driven by
“delayed adulthood,” the notion that young adults begin their careers, get married and have
children later in life.
Younger
Millennials are
moving to the
suburbs at a
slower pace.
If it still looks and feels as if Millennials are increasingly moving to cities, it is because they indeed
are. Although more Millennials are moving to suburbs than are moving to cities, the rate at which
young adults are moving to more urban areas has ticked up over the past few years, narrowing the
gap between suburban and city moves (Figure 6). Similarly, city-dwellers who move are more
likely to stay in a city than prior to the recession, even if the “retention rate” is not as high as it is
for the suburbs or a few years ago (Figure 4).
Figure 5
Figure 6
Moving to Suburbs
Moving to Cities
Percent of Movers Relocating to a Suburb
Percent of Movers Relocating to a City
22%
22%
22%
22%
Ages 18-24: 2014 @ 14.3%
Ages 25-29: 2014 @ 12.3%
20%
20%
20%
18%
18%
18%
18%
16%
16%
16%
16%
14%
14%
14%
14%
12%
12%
12%
12%
10%
10%
10%
Ages 18-24: 2014 @ 16.4%
10%
Ages 25-29: 2014 @ 13.8%
20%
Ages 30-34: 2014 @ 11.9%
Ages 30-34: 2014 @ 19.6%
8%
8%
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
8%
8%
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
6
Data on metropolitan mobility for 2004 and 2005 are unavailable from the Census Bureau.
3
Millennials on the Move: Urban-Suburban Divide
April 09, 2015
WELLS FARGO SECURITIES, LLC
ECONOMICS GROUP
What’s Motivating the Moves?
Most younger
Millennials
move to
establish a
household.
Geographical mobility provides important insight into tracking the behavior of the Millennial
generation, but leaves an important question unanswered: why are they moving? Millennials of
all ages cited a desire for a new or better home or apartment as one of their primary reasons for
moving in 2014 (Figure 7). Younger Millennials age 20-29 also frequently cited a desire to
establish a household as their main motivation for moving, reflecting the fact that many of them
are just moving out of their parents’ house for the first time. Moving for a new job or transfer or to
look for work in a new area is also a common catalyst, particularly for older Millennials.
Interestingly, the desire to be closer to work ranks only in the middle of the pack, suggesting
location choices are secondary to other considerations. These data provide a nice snapshot of
current Millennial moving preferences, but how do the preferences of this generation compare
with the previous generation?
In aggregate, young adults have increasingly moved in search of cheaper housing, particularly in
the past few years. This fits with the increase in migration to suburbs, as housing in these regions
generally tends to be more affordable. Moreover, young adults have become less likely to move for
the sake of trading up for a better home or to better neighborhood, although this is still the most
often cited reason among all Millennials.
Proximity to
work is still a
secondary
concern, but is
becoming more
important.
In addition, the share of young adults moving primarily to establish a household has grown
steadily since the data began in 2001. Young adults age 25-29 have seen the strongest growth in
this category, with the share of this age group moving to establish a household growing a full
6 percentage points since 2001. With the slower rate at which this cohort has moved to the
suburbs, this suggests that 25-29 year-olds are increasingly seeking to escape suburbia once they
leave their parents’ houses and strike out on their own. Finally, while recent data show
Millennials’ proximity to work is often secondary to trading up, establishing a household or
moving for a new job, the share of 20-44 year-olds citing moving for an easier commute their
primary motivation for moving has climbed markedly since 2001 (Figure 8). The increased
importance of proximity to work has likely been a factor in the rising rate at which young adults
are moving to cities.
Figure 7
Figure 8
Moving to Live Closer to Work
Primary Reason for Moving
Pct. of Movers Citing as Primary Reason for Moving
2014
Better Home/
Neighborhood
8%
16%
10%
11%
9%
Cheaper Housing
8%
9%
Easier Commute
7%
Other Housing
Reason
6%
13%
5%
To Own, Not Rent
7%
Change in
Marital Status
0%
9%
15%
Other Family
Reason
Foreclosure/
Eviction
10%
Ages 20-24: 2014 @ 9.4%
Ages 25-29: 2014 @ 7.9%
Ages 30-44: 2014 @ 6.6%
Total Population: 2014 @ 6.2%
19%
10%
Job Related
Other Reasons*
10%
17%
16%
Establish Household
9%
8%
7%
7%
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
4%
6%
3%
Age 20-29
2%
Age 30-44
1%
1%
0%
4%
8%
12%
16%
20%
24%
0%
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
* Other Reasons include attending/leaving college, natural disasters and health reasons, among others
Over the same time period, we have seen a marked decline in the share of young adults primarily
moving to buy a home rather than rent (Figure 9). This comes as no surprise given the tight
credit, low inventories and tenuous recovery in jobs and income since the recession. However,
some of this decline has been retraced over the past few years, particularly among the cohort
consisting of older Millennials. This coincides with the recent pickup in the rate at which
30-34 year-olds are moving to the suburbs. More recent improvement in the labor market,
particularly in job prospects, has likely played a role in this retracement. Younger Millennials, age
4
Millennials on the Move: Urban-Suburban Divide
April 09, 2015
WELLS FARGO SECURITIES, LLC
ECONOMICS GROUP
20-24, have also increasingly cited a desire to own as a reason for moving, albeit still a very small
share. Historically, few 25-29 year-olds, however, indicate owning a home as their main reason
for moving.
Yet the shifting patterns among why today’s young adults typically move are not unique to this
age group. Compared to the mid-2000s, adults of all ages are moving less to trade up or own a
home and are more likely to move in search of cheaper housing or to live closer to work. The
similarities suggest that Millennials are not fundamentally different than older adults, and
instead, their reasons for moving are more of a reflection of the current economic environment.
Millennials
preferences are
a reflection of
the current
economic
environment.
Staying Put: Millennials Not So Mobile After All
Our analysis of location decisions for Millennials and their reasons for moving is based on those
that have moved over the previous year. It is worth noting, however, that today’s young adults are
moving less and less. Not surprising, given the large number of life events, such as attending
college, changing jobs, getting married or starting a family, young adults are significantly more
likely to move in a given year than the rest of the population. Yet the share of 18-34 year-olds who
move has largely been declining since 2000 (Figure 10).7 Again, this trend is not unique to young
adults, with the moving rate of all Americans declining over the past three decades, falling from
more than 20 percent in 1985 to 11.5 percent in 2014. While some have blamed the rise of dual
career household for lower moving rates,8 research suggests smaller benefits to changing jobs
since the mid-1980s is the primary culprit.9 The general dearth of job opportunities since the
recession likely exacerbated the decline in moving rates over the past six years. However,
desperation may have led more households to take jobs that required moving, partially offsetting
this dynamic.
Millennials, like
the general
populace, have
gradually
become less
mobile.
Figure 10
Figure 9
Mobility Rate of Young Adults
Moving to Own, Not Rent
Percent of Population Moving Over Past Year
Pct. of Movers Citing as Primary Reason for Moving
15%
15%
12%
12%
36%
36%
Ages 18-19: 2014 @ 13.2%
Ages 20-24: 2014 @ 24.3%
Ages 25-29: 2014 @ 23.2%
Ages 30-34: 2014 @ 18.1%
Total 18-34: 2014 @ 21.0%
32%
9%
32%
28%
28%
24%
24%
20%
20%
3%
16%
16%
0%
12%
9%
6%
6%
Ages 20-24: 2014 @ 4.0%
Ages 25-29: 2014 @ 5.4%
Ages 30-44: 2014 @ 6.7%
Total Population: 2014 @ 5.6%
3%
0%
01
02
03
04
05
06
07
08
09
10
11
12
13
14
12%
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
In addition to bleak labor market prospects, the fallout of the housing bubble has also been partly
to blame for lower moving rates. Homeownership can make moving costly, even more so for
homeowners with negative equity.10 Younger homeowners, including Gen X’ers, were hit
particularly hard by the decline in home prices, having been in the home relatively few years and
therefore, having made only modest dents in mortgage principle. According to Zillow, 20 percent
Data for 2004 and 2005 are not available by age group from the Census Bureau.
Costa, Dora ad Matthew Kahn. 2000. “Power Couples: Changes in the Locational Choice of the College
Educated.” Quarterly Journal of Economics. 115(4): 1287-1315.
9 Molloy, Raven, Christopher L. Smith and Abigail Wozniak. 2013. “Declining Migration Within the US:
The Role of the Labor Market.” Federal Reserve Board Divisions of Research & Statistics and Monetary
Affairs Finance and Economic Discussion Series. 2013-27.
10 Ferreira, Fernando, Joseph Gyourko and Joseph Tracy. 2011. “Housing Busts and Household Mobility:
An Update.” Federal Reserve Bank of New York Staff Reports, No. 526, November 2011.
7
8
5
Millennials on the Move: Urban-Suburban Divide
April 09, 2015
WELLS FARGO SECURITIES, LLC
ECONOMICS GROUP
of Millennials were underwater on their mortgage in the second quarter of 2014 compared to
11 percent of Baby Boomers.11
Bottom Line: Suburbs Still Appeal to Millennials
Falling moving rates, combined with shifting location decisions among today’s young adults, have
the ability to further reshape the housing market, which has already been significantly altered
over the past decade. The tendency for the most mobile Americans to stay put longer in their
current housing will, if maintained, limit turnover in both rental and owner-occupied housing.
When combined with the lower moving rates of older adults who are more likely to be
homeowners, it suggests that, all else equal, sales activity and existing home inventories will
remain under pressure.
It is too early to
count out the
suburbs.
The pickup in the rate at which young adults are moving to cities lends support to the rise in
multifamily construction in many major cities, particularly construction closer to the urban core.
Yet, migration patterns show it is too early to count out the suburbs. Even as cities have become
relatively more attractive to young adults, Millennials are still moving to the suburbs in greater
numbers than to cities. As the recent trends of 30-34 year-olds show, once Millennials begin
families of their own, the allure of more space and typically stronger school systems may pull this
generation out to suburbs, similar to that of prior generations.
Grudell, Svenja. “Negative Equity Causing Housing Gridlock, Even as it Slowly Recedes.” Aug. 25, 2014.
Zillow Real Estate Research.
11
6
Wells Fargo Securities, LLC Economics Group
Diane Schumaker-Krieg
Global Head of Research,
Economics & Strategy
(704) 410-1801
(212) 214-5070
[email protected]
John E. Silvia, Ph.D.
Chief Economist
(704) 410-3275
[email protected]
Mark Vitner
Senior Economist
(704) 410-3277
[email protected]
Jay H. Bryson, Ph.D.
Global Economist
(704) 410-3274
[email protected]
Sam Bullard
Senior Economist
(704) 410-3280
[email protected]
Nick Bennenbroek
Currency Strategist
(212) 214-5636
[email protected]
Eugenio J. Alemán, Ph.D.
Senior Economist
(704) 410-3273
[email protected]
Anika R. Khan
Senior Economist
(704) 410-3271
[email protected]
Azhar Iqbal
Econometrician
(704) 410-3270
[email protected]
Tim Quinlan
Economist
(704) 410-3283
[email protected]
Eric Viloria, CFA
Currency Strategist
(212) 214-5637
[email protected]
Sarah House
Economist
(704) 410-3282
[email protected]
Michael A. Brown
Economist
(704) 410-3278
[email protected]
Michael T. Wolf
Economist
(704) 410-3286
[email protected]
Mackenzie Miller
Economic Analyst
(704) 410-3358
[email protected]
Erik Nelson
Economic Analyst
(704) 410-3267
[email protected]
Alex Moehring
Economic Analyst
(704) 410-3247
[email protected]
Donna LaFleur
Executive Assistant
(704) 410-3279
[email protected]
Cyndi Burris
Senior Admin. Assistant
(704) 410-3272
[email protected]
Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and
Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these
publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC, Wells
Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. Limited. Wells Fargo Securities, LLC.
("WFS") is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member in good standing of the National
Futures Association. Wells Fargo Bank, N.A. ("WFBNA") is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in
good standing of the National Futures Association. WFS and WFBNA are generally engaged in the trading of futures and derivative products, any of which may
be discussed within this publication. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions.
Wells Fargo Securities, LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm
which includes, but is not limited to investment banking revenue. The information and opinions herein are for general information use only. Wells Fargo
Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from
the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general
information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice.
Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2015
Wells Fargo Securities, LLC.
Important Information for Non-U.S. Recipients
For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited ("WFSIL"). WFSIL is a U.K. incorporated investment firm
authorized and regulated by the Financial Conduct Authority. The content of this report has been approved by WFSIL a regulated person under the Act. For
purposes of the U.K. Financial Conduct Authority’s rules, this report constitutes impartial investment research. WFSIL does not deal with retail clients as
defined in the Markets in Financial Instruments Directive 2007. The FCA rules made under the Financial Services and Markets Act 2000 for the protection of
retail clients will therefore not apply, nor will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be
relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the "Materials") are provided for general
informational purposes only.
SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE