If today’s houses were as small as 1973’s, maybe millennials could actually afford them

You don’t have to drive around the Boise area much to realize that the Treasure Valley is at the epicenter of changes in both single-family and multifamily housing.

This surge in construction is due to a confluence of both cyclical (short term) and secular (long term) changes in demographics and socio-economics.

The cyclical factor is the relatively low cost of single-family housing relative to neighboring states. According to Zillow, the median listed price in California is $550,000, in Seattle $730,000, in Portland $425,000. Boise’s median listed price of $295,000 has proved to be an enticing option to those other locales, especially for people who are retired or close to retirement and who want to capture some of the equity in their current homes.

There is the potential for the valley to experience a more secular, long-term trend in housing growth, much as Seattle and Portland have. But unless wage growth accelerates along with housing prices, the trend may prove to have been cyclical. We are already experiencing declines locally in housing affordability.

The secular issues already affecting the local market are changes in demographics and, to a lesser extent, affordability.

These issues are manifested in the significant increase we are seeing in multifamily construction. In 1973, the average square footage of a new single-family home was 1,660 square feet, and the average number of individuals in a family household was 3.48. That’s 477 square feet per person. In 2017, the average square footage was 2,631 with 3.14 individuals, or 838 square feet per person.

Kevin Jones square crop.jpg
Kevin A. Jones

The millennial generation is in its prime household formation years, yet we are not seeing the same levels of household formation of previous generations. It is possible that this generation views home ownership in a more utilitarian way: Millennials really require only 3.14 people times 477 square feet, or a 1,497-square-foot house.

If prices per square foot are held constant, this would be 57% of the cost of the large homes currently being constructed.

Millennials’ lack of household formation, coupled with affordability barriers, have led to the boom in demand for multifamily housing here.

It is folly to assume that this generation will follow in previous generation’s footsteps, just later. Millennials’ childhood years were unlike those of previous generations. Most were raised in households with two incomes.. These experiences will likely lead to a different perspective on household formation and housing.

In the meantime, get used to the tall buildings going up and the increased traffic.

Kevin A. Jones, a chartered financial analyst, is principal at Harmonic Investment Advisors in Boise.