Kids are Living at Home Longer, and They Should!

I hear a lot of criticism of this latest generation.  Headline after headline implies they’re lazy and perhaps entitled.  However, when I look critically at this group I don’t see much difference between them and my generation at the same point in life.  My generation was criticized in almost the same way by the boomers and you know the greatest generation was appalled at the prospects of this country being run by the baby boom generation.

The fact is that millennials are staying at home with their parents longer or renting when they really want to buy. This group is lagging behind previous generations in achieving independence but is this evidence that they’re lazy, entitled and unwilling to support themselves?

I have something of a unique perspective on this topic as a real estate investor, developer and real estate agent.  Moving out of your parents’ home and especially buying a home of your own is kind of the benchmark for adulthood in this country.  I’m acutely aware of the many housing challenges facing this generation.

It has become my belief that this latest generation to reach adulthood is being screwed by the previous generations like no other generation before.  The burden on later generations will only grow if we don’t recognize the problem.  If we can’t do that then we should at least recognize the burdens we are placing on the young.

It’s not just housing costs that are crushing young families.  I see 4 or 5 –depending on how you look at it- major barriers for the young adult.

Education Expenses: These days our kids are told that they cannot hope to get a good job without a college degree.  They’re not told what kind of degree they’re just told they need one.  The cost of an education has absolutely sky rocketed in the past 40 years.  I was talking to an older friend who told me his George Washington University Masters degree cost him around $6,000 back in the 70’s.  I believe a Master’s degree from GW now costs around six figures, just tuition.

Kids are starting off their professional lives with debt in excess of what their grandparents took on to buy their first home.  They’re finding that the salaries for many of these jobs don’t justify the educational expense.  Yet the public school teachers continue to push every child toward college while our country suffers drastic shortages in the trade fields such as welders, carpenters, and mechanics.

My son is a straight A student and in all the advanced classes.  When he left middle school he chose to go into a welding program in high school.  Upon discussing this with one of his teachers, the teacher looked a little concerned and said, “You do know that he is college material?”  I assured him that I was aware but I believe creating things with your hands is good for the soul and it also helps a young mind better understand the math and physics or traditional education.  If he wants to be an engineer then being familiar with welding will be of great value to him.  If he wants to be a welder, well that’s fine too.  Welders can make a great living.

While still ladened with their own college debt these youngster also have to worry about their kids’ education.  Education is becoming so burdensome that you have to put something aside for your children.

Medical Expenses:   Medical expenses are the only things that have gone up more in cost than education.  It is no longer a small portion of your paycheck.  The costs for a young family, even with an employer helping, exceed the costs of their car payments, maybe even their rent.

The solution for the latest healthcare reforms has been to transfer the medical costs of the older generation onto the youngest working generation.  That seems almost unprecedented to me.  We used to pave the way for the next generation.  Are we now going to yoke them to the plow?

Do I have a solution? No. But I do think we need to keep this in mind as we move forward and particularly when we form our opinions of younger generations.

Retirement Savings: There is no retirement plans anymore.  Unless you work for the government you are on your own.  The youngest adult generations know that they are going to have to set aside some portion of their income to support them when they can no longer work.  It’s fairly clear to us Gen X’ers and Millenials that there will be no social security for us when we retire.  Bring up the topic of Social Security reform and the older generations scream, “don’t touch our social security.”  So the generations that let the trust fund be looted for decades by the politicians they put in place want the younger generations to pick up the entire bill for the mess.

Housing Expense: Now I’m finally to the housing issue.

Government policies and regulations are driving up the prices of housing.  In fact, regulations imposed by government at all levels accounts for 24.3 percent of the final price of a new single-family home built for resale, according to the report “Government Regulations in the Price of a New Homes” by Paul Emrath for the National Association of Home Builders.

Did you know that back in 1950 the average land costs for a new single-family home was about 5 percent of the total cost of the project? Back then, the average home size was 983 square feet. These days the developed lot costs account for nearly 40 percent of the total new home project budget.  Now, according to the National Association of Home Builders, that number has more than doubled.

Decades ago, a developer would apply to build a subdivision. If the county approved the project, it would sell bonds to raise funds for streets and utilities. They would recoup that cost with all the additional taxpayers moving into the community to fill the new homes. But now counties and municipalities make the developer put in the streets and sewers and deed them to the government upon completion. The counties also have started charging impact fees for the increased demand for schools, police, etc. More recently it’s become common practice for counties to making developers improve surrounding roads,  build public parks or make outright cash contributions for public works before a project is approved.

The additional development costs drive up home prices.  It also drives up the size of homes which is directly counter to any regulatory attempts at making homes more environmentally friendly or “green.”  The most efficient home is a small home.

New construction drives the market so if the cost of a new home goes up then the cost of existing homes follow. If the costs of a project exceed the value a builder can get then they don’t build. The lack of inventory works the same way. As demand outpaces supply, existing home prices go up until the price is high enough to encourage new development.

The problem is that the builder doesn’t really bare these costs. It’s the buyer moving into the area to start a career and a family who picks up the bill.

Builders want to build and we know there is a huge demand for smaller homes at a lower price. I would absolutely love to build 1,600-square-foot starter homes in this area. I could sell those quickly and move on to the next project. However, there’s no way to make a project like that work with permit and impact fees and utility costs around $75,000 per home. That’s nearly half the cost of the build price on a 1,600-square-foot home.  Many local governments are outright banning small home construction.

That’s why you see so many high-end housing developments – including $1 million condos – going up in Washington D.C. and surrounding areas. With so many costs associated with construction, it’s very difficult to make money building $500,000 condos.

We are looking at a housing crisis in the Washington area.  Where exactly is this next generation filling the $40,000 a year jobs with their freshly minted college degree supposed to live?

On top of that, a lot of communities, like Arlington, are implementing rules that discourage homeowners from renting out portions of their home. This seemingly is a barrier to people who would need the income from renting out a room to offset the exorbitant costs of their oversized home.

Of course the older generations benefits greatly from this situation.  Most of the public roads and infrastructure the developers are forced to improve in order to get approval for their project have been way over due for improvement well before the project was ever conceived.  Sticking the costs with the developers yields two major benefits to the existing residence.  First; they don’t have to pay higher taxes to improve the infrastructure themselves.  Second; the additional development costs drive up home sizes and prices which drives up the value of their home and their equity.

Meanwhile the older generation who bought their Fairfax home for $100,000 in the 70’s now sells it for $600,000 and then takes the profit with them down to their dream home in Florida.

That kid that bought the home for $600,000 will need to sell it for $3,000,000 in 40 years to realize the same appreciation.  That’s just not going to happen.

But, Justin, developers won’t pass the savings on to buyers.  Heck yes they will.  As I said, Builders want to build and we know there is a strong market for smaller more affordable homes.  More modest cost developments are perfect for the small developer who is unable to raise the millions of dollars of equity required for high end development. Small developers are also more suited for this type of project. Their lower overhead costs help them keep prices down.

I’ll wait for the comments about the affordable housing programs.  You know the programs that give out tax dollars to developers to offset their costs in building affordable housing.  That’s a joke.  It gives money to large developers who lobby politicians and who have staffs and resources to navigate the bureaucracy.  The large developers don’t care about the costs of development.  Small affordable housing developments are the perfect size for the small developer but the numbers don’t work as stated above and they don’t have the staff or resources to lobby for public money.  But, that’s a whole different subject.

Elected officials scream about the environment while implementing policies that dictate larger homes requiring more trees to build and energy to heat all while they discourage you from maximizing the use of your oversized home by renting out a portion.

They also cry about the affordable housing problem while they implement policies that drive up the price of housing.

The bottom line, in my opinion, this generation is not really any different than those that preceded them save the burden placed on them by their parents.

There is a huge difference between a kid living in the basement sitting on his butt all day and one that works a full time job but understandably can’t afford their own place.

The millennials are on being bilked to pay for our medical expenses and dilapidated infrastructure.  They’re being held hostage by ridiculous education expenses and expectations.  It’s also clear that they’re on their own when it comes to their own retirement but in the mean time they’re going to also pay for the older generation’s retirement.

I think we need a major paradigm shift in this country of ours.  Or, at the very least, we need to cut these kids some slack.  If we’re going to expect them to pay for the messes we’ve made then we can at least let them crash in our basements.

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