The Million(s) Millennial March to the suburbs commences.
Many metro-area downtowns have enjoyed a resurgence. Much of the growth has been fueled by young college graduates eager for opportunities and easy access to entertainment. The expansion has been bolstered by two population increases. First, over the last ten years the number of people in their 20's increased by over 4 million. Second, over the same time period, the proportion with a college degree increased by 5 percentage points.
But the sands are shifting. First, as Millennials marry and have children they are leaving the central cities. Second, the overall population growth of young adults is about to stagnate. These two trends will have far-ranging implications for a variety of industries. I'll discuss these in future writing. In this post I'll explain the dynamics of Millennial household formation and what it means for where they are going to live.
I'll start the explanation using my hometown of Washington, DC as an example. From there, I'll broaden it to other major metropolitan areas.
6.2 million people reside in the DC Metro area in 2.3 million households. 14% of these households are located in the District itself. For the purpose of this analysis, I've classified residents of Washington, DC as living "downtown" and everyone else as living in the "suburbs."
The first thing one needs to understand about recent metro-area trends is just how much they are being driven by recent college graduates. Since the year 2000, when Millennials started moving into Washington, DC, the number of graduate households has nearly doubled. Over this same period of time, the number of non-graduate households has declined.
You can see this in the chart below. The height of the bars indicates the number of households in Washington, DC from the year 2000 through this year. The blue portion of each bar represents the number of non-graduate households. The downward trend is clearly evident. The orange portion of the bars represents the steady growth of graduate households. Overall, this has been the strongest growth Washington, DC has seen in over fifty years.
Because of the above dynamic, the remainder of this analysis is exclusively focused on households headed by at least one college graduate. Please do not ascribe the following results to non-graduates. Their dynamics of household formation are quite different. Among other things, non graduates start getting married much younger, but their pace slows as they age. Ultimately, fewer of them get married than do college graduates.
Given the press they are receiving, it shouldn't be too much of a surprise that Millennials constitute the largest generation of downtown graduate households, and the margin is growing. It won't be long before they account for over half of all graduate households downtown. This is demonstrated in the chart below. Millennials are represented by the top row of green bars.
The inflow of Millennials has been complemented by the staying power of prior generations. There are slightly more Gen X, Boomer, etc. graduate households downtown now than there were in the year 2000. Their resilience has been part of the story of Washington's growth.
And that raises the big question. Will Millennials age out of living downtown? Interestingly enough, that turns out to be the wrong question. Millennials aren't so much aging out of downtown, as they are life-staging out. Regardless of age, only 8% of graduate Millennial married/children households are located downtown.
In contrast, 38% of Millennial single households are located downtown. Age does appear to be a factor with where singles decide to live. 44% of householders in their 20's live downtown while only 33% of those in their 30's do. But, as you can see, it's the kids that make the real difference.
Prosperity appears to be one of the key factors that distinguishes the downtowners from those in the suburbs. The household income of the downtown couples with children is 70% greater than those in the suburbs. Additionally, 60% of the downtowners own their homes. This is five times the rate of home ownership of single, downtown Millennials. That sort of financial wherewithal isn't widespread.
And it looks like graduate Millennials in the DC Metro area are the "settling-down" kind. If trends hold, then families will ultimately make up well over 50% of Millennial graduate households. You can see this in the chart below which correlates the type of household with the age of the householder. The orange portion of the bars represents the proportion of the households that are couples with children.
Left to right, the chart reads from the younger Millennials to the older. The two rightmost bars represent the leading edge of the Millennials; those born in 1981 and 1982. Couples with children already represent over 50% of households for both of these birth years.
The blue portion of the bars represents the proportion of households that are single. As you can see, it steadily declines as Millennials age.
The two above trends are underscoring Millennial movement to the DC suburbs. The below chart represents the growth in the number of graduate households downtown and in the suburbs from 2002 through September, 2017. As you can see, the number of households downtown, represented by the blue line, is still growing at a healthy rate. But growth in the suburbs (the orange line) is really taking off.
It may surprise you that the DC suburbs have been winning this race all along. But, it's understandable why this has gone largely unnoticed. Millennials don't yet have strength of numbers in the suburbs. As I noted earlier, they are well on their way to accounting for over 50% of graduate households in Washington, DC. They constitute less than 25% in the suburbs. So, their presence gets overlooked.
While market dynamics differ, each of the other top 10 metro areas are experiencing the same two trends. Singles live downtown more than do couples with children. Family households will grow to be over 50% of the total number.
Please look at the chart below which reports the percent of graduate Millennial households located downtown for each top 10 metro area, split out by singles and couples with children. The blue bars represent singles and the orange bars represent couples with children.
The proportions vary, but there is not a single metro area that does not follow Washington DC's pattern. On average a much higher proportion of singles lives downtown than do couples with children.
In all metro areas, household type is much more significant than age in determining whether the household is located downtown. The proportion of households located downtown varies quite a bit in the above chart. That's because I delineated the downtown/suburban areas to facilitate consistent comparisons over time in each metro area; not to create a consistent balance between downtown and suburban.
That said, no matter how one delineates downtown and suburban or slices the data, they'll find that as Millennials start families they tend to move toward lower-density population centers. The finding holds collectively for the smaller Metro areas, and it holds for the data collected as part of the Current Population Survey (~650k annual household surveys) as well as the American Community Survey (~1.2 million annual household surveys). (I conducted the same analysis for each set of surveys separately).
I mentioned in the first paragraph that the population of young adults had increased by over 4 million over the past ten years. The next ten years won't repeat that. This is clearly demonstrated in the chart below, which reports the number of people in the US by age. The chart is color-coded by generation.
One of the most interesting aspects of looking at the generations this way is how clearly it shows the population peaks and valleys within the generations. The Millennial peak at the age of 26 is particularly significant. According to Census Bureau projections there won't be this many 26 year-olds in the US again for the next 30 years.
This tells you a lot about Gen Z. It is significantly smaller than the Millennial generation is now. Were it not for anticipated immigration, ten years from now there would be 3.5 million fewer people in their 20's than there are today. Immigration is currently expected to keep the population even.
So, what does this all mean? This will play out differently in each metropolitan area, but, in general, Millennials will be increasingly looking to the suburbs as they transition from single to family life. This will be accompanied by abrupt changes in their priorities as reflected in how they spend their money. I'll address this latter point in a post I'll publish early next year.
Downtown areas won't be able to count on population-based pressure to spur demand for new housing at the same rate it has in the recent past. Those concerned should keep a close eye on college graduation rates as well as the rate of retention of their populations by age and life stage. The strategies one employs when your customer base is expanding rapidly aren't necessarily the right ones for times of slower growth. Since the difference in population is likely to be made up by immigrants, they may also wish to determine if and how that will change the nature of housing demand.
The good news is these overall population trends are mostly fixed. You have time to prepare for and take advantage of the changes to come.
Please follow me on LinkedIn if you'd like to read further generational research. Upcoming posts will deal with how life stage impacts spending priorities and the implications of how wealth is allocated across the various generations.
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**The top 10 Metro areas are Atlanta, Boston, Chicago, Dallas Fort Worth, Houston, Los Angeles, Miami, New York City, Philadelphia, and Washington, DC.
Unless otherwise noted, all the of preceding analyses were based on data from The Current Population Survey, conducted by the US Census Bureau. Most of the analyses were based on the monthly data. Income analysis was derived from the Annual Social and Economic Supplement from the March survey. Data provided courtesy of ipums.org.