One of the most critical skills of any prosperous company is the knowledge and understanding of its customer base. Generation Y is now one of America’s largest generational groups, surpassing the baby boomers, and they command increasing attention from real estate professionals. Urban Land Institute, Pew Research Center, and other analysts have performed valuable surveys to greater understand the quality-of-life ingredients needed to attract this generation to a municipality or residential development.
Generation Y stands in contrast to its parental generation and has notable characteristics that will shape their future real estate behavior. In 2010, Gen Y comprised 25% of the population and surpassed the baby boomer generation’s 24.6% portion of the U.S. population. This was equivalent to 77.4 million of Gen Y and 76.2 million Baby Boomers. This number may continue to grow because immigrants tend to be in the Gen Y age parameters. There are no definitive dates, but in general this cohort was born between the late 1970s and early 2000s. Gen Y will dominate the residential demand for decades to come, much like the baby boomers have done over the past 25 years. Pew Research shows this group is well educated with approx. 54% having some type of college education. The 2010 ULI survey respondents showed 31% of ages 25-32 years having a Bachelor’s degree, while 17% had advanced degrees/postgraduate work. This is higher than any preceding generational group. Gen Y is also ‘tech savvy’ having grown up in a time of vast technological advancements. Eight-in-ten say they sleep with a cell phone by their bed, remaining “always connected” with their handheld device. Gen Y views work differently than Baby Boomers in that more Gen Y’s ‘work to live’ and not the other way around. Balance between work and life is very important. They are goal oriented and favor efficiency, not working for long hours for the sake of appearances. Also, only 10% of the ULI respondents expect never to retire compared to their parents 25%. This is supporting evidence to another trait of Gen Y; they put more emphasis on experiences than on material possessions, preferring to spend money on vacations, food, and adventures. Gen Y is more ethnically mixed than any previous generational group at 40% compared to the Baby Boomer’s 27%. Most Gen Y’s enjoy the ethnic mix. When asked what unique traits they have, the answers in order of significance were technology, music/pop culture, liberal/tolerant, smarter, and clothes. Notably, work ethic was not ranked and it was a priority with all previous groups. In terms of marital status the 2010 ULI respondents were dispersed at 63% and 37% between two categories of Single/divorced/widowed and Married/partnered, respectively. Similarly, the households with children were just below one-third with children.
Understanding the behavior and preferences of Generation Y will allow real estate developers to better position themselves for this flourishing demand. A unique characteristic to this segment evident by its illustrative branding as “emerging adulthood.” In 2010, One-quarter of the ULI respondents still rely on their parents or colleges for housing, while Renters and Owners were 38% and 36%, respectively. This leaves significant opportunity for apartments to serve this 26%, or possible 20 million renters, as they transition to independence. The study further divided this number by age groups of 18-24 yrs. and 25-32 yrs. which Renters by 38% and 37%, respectively, and Owned by 15% and 48%, respectively. Contrary to the generalization that young people want to live in urban settings, the ULI respondents were almost equally split between urban downtown, in-city neighborhoods or newer outlying suburbs, and older suburbs/small towns/rural areas. The 2010 response for Urban Downtown was 28%, but when asked where they desired to live in 2015 this increased to 34%. This shows some pent-up demand for urban living, especially in apartments. Understandably, ownership is based more in the suburbs & small towns, and renting is more prevalent in the city. The anticipated housing in 2015 for ownership is predominantly single-family residence. Inversely, the majority of rentals is expected in apartments/condominiums. The top four housing features ranked by Gen Y are Price/Rent, Size, Interior design/layout, and security. Green Features/sustainability were not as important with many preferring only if there was minimal cost difference. Size does not mean excess, because Gen Y does not value the large homes that previous generations lived in. The ULI respondents were asked what feature they considered most important when evaluating a residential neighborhood. “community character” was ranked first, followed by safety. Two-thirds of the Pew respondents said “you can’t be too careful” when dealing with people. Gen Y also puts more emphasis on experiences than on material possessions. The ULI respondents noted that spending time with family/friends, watching TV, reading, and listen to/play music ranked as the top 4 ways they spend free time. This shows that amenities matter, and the interior & exterior living experiences are important. These activities can all be done within residential facilities and should all be addressed during design. Analogous to this is Gen Y’s preference for living within walking distance of shopping and social gathering places. The 2010 ULI survey noted that 64% preferred this walkability. 75% of this group uses some form of social media, therefore this medium should be used by all real estate professionals. For a generation that defines their unique trait as “technology”, advanced connectivity features will one-day be a requirement, but for now it is often the “leg up” against the competition.
Despite many of the behavioral differences, the goals and aspirations of Gen Y matched those of their parents. When ranking life’s priorities, Pew Research notes that Gen Y’s match the older generations with the top four as follows: Being a good parent, having a successful marriage, helping others in need, and owning a home. This reiterates the need for family-friendly design of living spaces and amenities. Home Ownership, primarily suburban single-family residences, is still an American dream. But reality may hinder the fruition of these dreams for some time.
The current economic factors that face Gen Y may dampen the optimism or at least present obstacles. Entry into the job market has been impacted by the Great Recession, and this group has the largest unemployment rate, formidably at 10%. Pew noted that 37% were either underemployed or out work. But they have remained surprisingly optimistic. This may reflect some naivete and support the “emerging adulthood” branding. According to the National Foundation for Credit Counseling, only 58% of this generation pays their monthly bills on time. This group is also graduating with an average of $23,200 in student debt. At the same time, a majority of ULI respondents believe they will make a down-payment of less than 20% when purchasing their home. Based on the current mortgage markets, this is not realistic for most borrowers. Taking into account the expectations to own by 2015, the prolonged constraints financial markets will likely make this ownership difficult. It is almost as if in the same manner Gen Y’s prolonging maturity to adulthood, so the achievement of their goals be prolonged. Having said that, the higher education should enhance their pay scale helping attain the financially dependent goals.
Written by Josh Lowder, CCIM MRED, 2012