Banks are leaving millennials who want to buy homes out in the cold | Opinion
Millennials have grown accustomed to the regularly scheduled disappointments brought to us by the banking institutions we’ve been encouraged to rely upon. On the news that Miami, my hometown, is now officially the least affordable housing market in the country, it’s worth pointing out the role those banking institutions have played in enabling the housing shortage to get worse, decade after decade.
That housing shortage forces rents higher — and the costs to buy a home even higher — pushing Miami residents to spend upwards of 79% of their monthly income on housing expenses.
With regional banks responsible for about 70% of all new home-construction financing, the supply crisis is likely to get a whole lot worse.
The latest folly, precipitated by epic asset mismanagement at purportedly trustworthy financial institutions, coupled with poor regulatory oversight, spells further hardship for my generation as we anticipate a significant credit crunch.
It’s already clear that disinvestment by banks is becoming acute in one important market sector — new home construction. According to Robert Dietz, National Association of Home Builder’s chief economist, “a follow-on effect of the pressure on regional banks, as well as continued Fed tightening, will be further constraints for acquisition, development and construction … for builders across the nation.”
The White House tells us the U.S. housing shortage hovers around 4.4 million homes and is growing every year. Combine this with today’s interest rates, ongoing consolidations, depositors fleeing to the safety of large national banks and the record number of commercial mortgages set to expire in 2023, and it is bound to get worse.
At a quick glance, it might seem that pulling back on new construction is prudent — higher interest rates will drive up costs for builders and prices for buyers, and higher mortgage rates will further dampen demand. But forecasters expect to see rates cooling comparatively as a slowing economy pushes down rates, while housing demand still looms large. The great big millennial generation has been, and continues to be, ready to build their families — but has nothing to buy. Starter homes accounted for 35% of all housing completions in 1970 and now make up less than 10%.
And renting is barely an option. The U.S. Census reports that, as of 2022 Q4, 94.9% of single-family rental houses were occupied, the highest occupancy rate in 25 years. In Miami, occupancy rates are up to 97%, representing the second most competitive rental market in the country.
This all means that my generation doesn’t get to benefit from the wealth-creation benefits home ownership offers. The Federal Reserve reports that homeowners have a staggering 40 times the net worth of renters. The ramifications of this exclusion show in the numbers: Millennials today hold just 4.8% of all wealth — fully 2% of which belongs to Mark Zuckerberg alone. There are now 40-year-old millennials and, at that age, Gen X had 9% of wealth while Baby Boomers had 21%. Let that sink in.
It’s time to recognize the ability for collective action and technologies that support alternative financing to propel us forward and meet the moment. New-home construction is the opportunity. Builders are ready, buyers are ready and if banks are shying away, I say, let them go!
Julia Wasserman, a Miami native, is COO of Florida-based Home Construction Collective, an investment platform for new-home construction.
