Millennials Housing Woes

As young people and builders have shifted their focus toward trendier urban markets, overall housing construction has declined.

The rush of young people to U.S. cities over the past few years is partly to blame for America’s worsening housing shortage.

In some of the country’s largest and most prosperous markets, such as New York, San Francisco, Boston and Los Angeles, housing construction has been stronger than normal in the urban core but weaker in the suburbs, where new housing can be built abundantly and more cheaply, according to an analysis set to be released Monday by BuildZoom, a website for construction contractors.

That is a problem because suburbs are typically the main drivers of housing construction.

preferences have changed among young people, many of whom want to live closer to transit, restaurants and their workplaces. The share of young, educated people living in the urban core of Washington, D.C., for example, increased 8.6 percentage points between 2000 and 2014, according to Jed Kolko, chief economist at job-search site Indeed and senior fellow at the Terner Center for Housing Innovation at the University of California, Berkeley. Portland, Ore., and Chicago each saw increases of 6.4 percentage points.

“The expensive cities tend to be shifting toward a paradigm that says having a better location is better than having a fresher, greener, newer place,” said Issi Romem, chief economist at BuildZoom.

As builders have shifted focus toward trendier urban markets and away from cheaper suburbs, they have produced less housing overall than they otherwise might have. While starter-home construction has bounced back in recent months, it remains far from reversing this long-term trend.

At the same time, high land costs in central cities have pushed developers to focus on higher-end housing geared toward high earners instead of younger people just starting out.

The shift helps explain one of the most vexing aspects of the housing recovery: New homes are getting more expensive and yet there are fewer of them being built than in past cycles.

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