Editor’s Note: JLL chief economist Ryan Severino, along with John Sebree, senior vice president and national director at Marcus & Millichap, and Dave Borsos, vice president of capital markets at the National Multifamily Housing Council, will kick off next week’s virtual Multifamily Executive Conference with the Annual Economic Outlook at 1 p.m. Eastern on Wednesday, Sept. 30. Be sure to tune in for the entire event, Sept. 30 to Oct. 2.
In April 2015, I wrote an article for Multifamily Executive about older millennials moving out of city centers into the suburbs and why their younger compatriots seemed certain to follow. Some people did not appreciate my thesis even though data supported it. Some went so far as to boo me when I presented this view at conferences.
As Upton Sinclair famously said, “It is difficult to get a man [sic] to understand something, when his salary depends upon his not understanding it!" Many who had a vested interest in developing, owning, and financing apartments in city centers did not want to believe this exodus was occurring. My message served as a warning, not of the demise of city centers and the fortunes of the apartments within. But it warned those believing that millennials would remain in city centers for a prolonged period, inconsistent with the behavior of prior generations.
Since writing that article, my thesis clearly proved true. Millennials continued to move out of cities into suburbs becoming homeowners and drivers in the process. I don’t like taking victory laps—that is dangerous in my line of work because forecasting proves challenging even during benign economic periods. But the COVID-19 pandemic is producing prognostications about an exodus of nearly everyone (or so it seems) out of cities. Therefore, I thought now would be a good time to revisit the genesis of the myth of millennials as permanent city residents, analyze what transpired since my original article, and provide some thoughts on what we could expect after the pandemic.
Origin of the Myth
In the first half of the 2010s, the myth of the millennial as a perpetual city dweller gained wide belief. Many subscribed to the idea that millennials behaved differently from prior generations and would not eventually transition from living in cities to the suburbs. Some (and I stress some) millennials promulgated this myth by incessantly declaring their love for cities and disdain for lawnmowers, driver’s licenses, picket fences, and most things suburban. Of course, I warned everyone not to rely on unreliable anecdotes from young people.
To be fair, the myth appeared to have an element of truth that was grounded in data, but the most ardent believers in the myth did not even look at the data. Those that analyzed the data, like me, noticed something unusual. In the early part of the last decade, the population growth rates in city centers accelerated, surpassing rates from the previous few decades. Moreover, the growth rates in city centers began exceeding the growth rates in those cities’ respective suburbs, also bucking the trend from prior decades. Most who observed this data thought it signaled a change in a trend—it seemed like the boisterous millennials were correct. But here lies the origin of the problem. Few people thought to wonder why the trends seemingly changed and simply bought into a seductive narrative about how differently millennials behaved.
What Was the Data Saying?
But what was the data really saying? The growth rates in city centers did increase at the expense of their outlying suburbs. However, that occurred not because millennial attitudes about living preferences had shifted. Instead, a confluence of temporary factors produced a decline in geographical mobility out of city centers to suburbs. Widespread job losses, very stringent residential mortgage underwriting standards, plummeting housing prices, and low housing inventory for sale prevented many older millennials from relocating. Concurrently, many younger millennials continued to move into city centers from suburbs as generally expected. Together, those forces produced the acceleration in city center growth rates and the deceleration in suburban growth rates.
But that proved a temporary anomaly and not the start of a trend. By 2015 when I wrote the previous article, older millennials had begun moving out. A stronger labor market coupled with a much-improved mortgage market and a resurgent housing market enabled them to do so and the normal population-growth patterns began to return. That reversion to trend continued over the balance of the decade. Growth rates in city centers slowed while growth rates in the suburbs reaccelerated (exceeding the growth rates in city centers once again). I presented this finding to a client recently who effectively remarked that she had moved past millennials as the prime rental cohort in city centers and had moved on to Gen Z.
That’s exactly the message I was trying to convey five years ago—millennials were starting to move, and the market would need to look at Gen Z as the prime rental cohort in cities. However, millennials are not yet done renting in city centers. The most common ages in the U.S. are 28, 27, and 29, keeping millions of millennials within the prime rental cohort. But the point still stands—many older millennials have already moved to the suburbs and many younger ones seem likely to follow as they head toward major life events like marriage and starting a family. Gen Z now drives much of apartment demand in city centers as population growth patterns realigned with the longer-term trend.
What Comes Next?
That brings us to the present crisis. Many have latched onto the new, seductive narrative that everyone is leaving cities for the suburbs. Much like the millennial myth, this story also seems plausible. But how true is it? While it is early in the crisis, it seems possible that some people will move out of cities, particularly those that were on the fence about moving or were actively delaying a decision. But it also seems highly unlikely that everyone will move out.
In the short run, we should remember that population growth in cities is not always positive. Even world-class cities such as New York, London, and Tokyo have all experienced population declines over the last 80 years. In New York’s case, after its population topped out around 1970 it took almost three decades to return to that peak level. Something similar seems unreasonable, but continued growth is not guaranteed. The most probable path forward? Even if we experience another period of divergence from historical patterns, over time we will likely revert to long-term trends with population growth in suburbs exceeding growth in city centers.