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. 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