Mark H. Leff – ´Bigger homes´
Over the last year, Realtor Charlie Ball has sold two- and three-family houses in Somerville to at least 10 people under the age of 30.
All of them had money to make big down payments for homes priced $300,000 to $500,000, said Ball, and most rent the other units of their multifamily home, getting between $1,800 and $2,000 a month for each unit.
“Younger buyers have more money than they did even four or five years ago,” said Ball, broker/owner of Century 21 Legacy Properties in Somerville.
But while young adults may be earning bigger salaries, housing experts say high prices and strict building restrictions in communities throughout Massachusetts are making it increasingly tougher for young adults to find homes.
Young buyers tend to congregate in communities like Cambridge, Malden, Everett and Somerville, where multifamily houses are plentiful, but they’re finding it difficult to find suitable and affordable housing in many other communities.
The problem is so acute that in some cases young adults are continuing to flee the Bay State, live with their parents longer or group together in nontraditional ways to buy homes, according to Realtors and analysts interviewed by Banker & Tradesman.
Some analysts even argue that developers and builders have virtually ignored the housing needs of Generation X – people between the ages of 24 and 35 – instead focusing on the more affluent and growing Baby Boomer set.
“Builders and developers don’t have to look into that market,” said Katie Rodd, an analyst with The Concord Group, a development consulting firm in Newport Beach, Calif.
“The housing market in general has been so strong that they haven’t had to make any effort to reach out to other generations,” said Rodd, who added that young adults like homes that are unique, near urban areas, and reflect their personalities.
Mark H. Leff, senior vice president for construction lending at Salem Five Cents Savings Bank, said Massachusetts developers don’t have a choice. They simply can’t afford to construct homes for young adults because building restrictions in the Bay State make it impossible for them to construct lower-cost housing at a profit.
Fewer house lots are being approved, forcing developers to make those approved lots profitable, and often that means building bigger, more elaborate homes with hefty price tags.
Those homes are typically unaffordable for young adult first-time homebuyers, particularly those who are unmarried and rely on one income.
“It isn’t because they [builders] don’t want to build for young adults. In fact, I think they prefer it,” said Leff, who is also a member of the Governor’s Special Commission on Barriers to Housing Development.
“To realize a profit from these lots, builders are forced to build bigger homes, and so the squeeze is really put on young adults,” he said.
Homeownership rates for young adults in the Northeast region have fallen slightly over the last decade, according to U.S. Census data. In 1990, a little more than 35 percent of the people between 25 and 29 years of age owned a home, compared to 33 percent last year.
Nearly 50 percent of people aged 30 to 34 owned a home last year, compared to almost 54 percent in 1990.
But homeownership went up for people younger than 25 in the Northeast. About 15 percent of people in that age group owned homes in 1990, compared to almost 18 percent last year.
In spite of these steady trends, two recent reports say young adults in Massachusetts are being squeezed out of the housing market.
Leff pointed to a report done for the North East Builders Association of Massachusetts in December that showed that zoning barriers, higher development costs and project approval delays were causing housing prices to skyrocket.
Another study, done in 1999 by the Massachusetts Institute for a New Commonwealth, is even bleaker. According to MassInc., people aged 34 or younger in Massachusetts are facing a huge housing burden – the fifth highest in the country – using a high portion of their incomes to pay for housing.
The housing costs, combined with other factors, may be driving young people out of Massachusetts.
According to MassInc., the state lost 126,000 people aged 25 to 34 between 1991 and 1997.
Leff said that some of those young people are fleeing to New Hampshire. According to the U.S. Census, New Hampshire saw the greatest population increase among the nation’s states, at 40 percent. Leff said much of New Hampshire’ growth is attributed to people who left Massachusetts in search of more affordable housing.
“The thing that obviously drives this is the incredible house price appreciation,” said Mark Duda, a research analyst at Harvard University’s Joint Center for Housing Studies. “Overall, things have gotten less affordable. For some groups it’s become fantastically unaffordable.”
‘Horrifying’ Market
Today, young adults have two things going for them – higher incomes and low-interest mortgage rates, Duda said.
These two factors theoretically should make it easier for young adults to buy homes. But in actuality, the lack of lower-cost houses or condominiums in desirable areas makes it more difficult for young adults to become homeowners.
Higher house prices mean that young adults actually have to save much more for hefty down payments and closing costs.
One in three buyers puts down 10 percent or less for a house. If the median price of a home in Boston is $440,000, that’s about $40,000 that a young adult must come up with for the down payment, Duda said. Young adults typically haven’t worked long enough to acquire or save that much money for a down payment, he said.
“These constraints potentially apply to everyone, but when you talk about young people, it’s particularly true, ” Duda said.
So what are young adults doing for housing these days?
Duda says they either live with their parents longer, or they “double up or buy houses outside of traditional family groupings.”
Often that means buying a two- or three-family home with a friend and using the rent from the other units to pay off the mortgage, he said.
The housing problem extends to young adults living in other parts of the country as well.
The housing needs of Generation X are underestimated and misunderstood largely because the media has portrayed them as lazy and unfocused – not the type of market homebuilders want to target, The Concord Group’s Rodd concludes in an article she wrote with Emma Tyaransen, a principle of The Concord Group.
The article, which appeared in the March issue of Urban Land, details interviews the women conducted with developers and architects, mostly from California and other Western states.
“A lot of them [Generation X] are renting because they can’t afford to buy a home,” Rodd said.
Linda O’Koniewski, broker/owner of Re/Max Heritage in Melrose, has seen a lot of young people renting – even though she calls the rental market “horrifying” – or living the college dorm life longer before buying a home.
She has also seen some people, particularly unmarried young adults, live on their own for a while and then return to live with their parents to save money.
“Young singles are handicapped by only having one income,” she said.
But O’Koniewski said she recently sold a $450,000 home to a 24-year-old, and often shows homes to young adults in pricey communities like Melrose, Stoneham, Wakefield and Reading.
“I’m not seeing them buy in droves,” she said. “But they’re at open houses and I’m meeting them online more than I used to.”
