For a few years now, certainly since the effective end of the Great Recession, I have written and lectured about the frustration of the new home construction recovery, as new home starts lumber on at well below the averages that go back to since statistics on starts were first gathered in 1961. And I have often said the biggest issue is the unleashed potential of the Millennial Generation, which has been slow to leave their parents’s basements, or even the rooms they grew up in, and form households. But slowly, that has begun to happen, albeit at a pace that is guarded. The Millennials are peeking out their parents’s front doors, finding roommates, and forming households, which has helped drive the multi-family rental market over the past few years.
But now the popular business press is reporting a nascent growth of small, suburban markets near several large metropolitan cities, driving growth that is actually straining resources in many of these suburbs. Virtually all of this growth is driven by newly-formed Millennial families that have married, started having children, and therefore need to move from their urban apartment life to the roominess of the suburbs and the school systems they offer. This is a trend that is growing and starting to gain real momentum. As I have often said, the unleashed potential of Millennials will have a huge impact on new home construction over the next five to seven years.
In an echo of the postwar baby boom, many U.S. suburbs are suffering growing pains: not enough schools, too much traffic for two-lane roads, and scenic farmland plowed under for housing tracts. After a few years of surging urban growth, a handful of suburbs now account for some of the fastest-growing U.S. cities with populations over 50,000. Millennials priced out of popular big cities are flocking to Apex, North Carolina; Frisco, Texas; Nolensville, Tennessee; Lakewood Ranch, Florida; and Scottdale, Georgia — not exactly household names but among the fastest-growing cities in the U.S.
Recent research by the Brookings Institution indicates that the back-to-the-city trend has reversed. Millennials, the generation now ages 23 to 38, are no longer as rooted as they were after the economic downturn. Many are belatedly getting married and heading to the suburbs, just as their parents and grandparents did.
Remember, the birth of America’s move to the suburbs began after World War II, when returning veterans sparked the market for new homes. Growth continued for decades, aided by more cars, better jobs, and new interstate highways. But what is different from the postwar boom of 1950s and 1960s is that growth is far more selective: limited to suburbs blessed by good weather and good jobs, largely in the Sunbelt, which are growing more than twice as fast as neighboring cities. Nearly all of the hot suburban locales have the good fortune to be a commute away from thriving cities or outposts of successful corporate businesses.
The suburban areas surrounding the 50 largest metropolitan areas make up 79% of the population of those areas. The financial crisis and subsequent recession stalled suburban growth, but that turned out to be just a bump in the road. The shortage of affordable housing in and around big cities is driving some people to fast-growing suburbs. And don’t forget the exurbs, loosely defined as outlying counties of large metropolitan areas, where single-family construction permits rose 1.6% in the first quarter of 2019, compared with a year earlier.
I predicted this wave of new household formations by the Millennials, but it has been slow to come. Some demographers are predicting this cohort alone will be responsible for as many as five million new households over the next five years if economic conditions remain constant, a giant shot in the arm for household formations that typically run around one million annually. If this occurs, we’ll witness a big boom in new home construction, which will have a strong, positive impact on the ready-mixed concrete industry and concrete construction.
