As millennials age, quest for a home grows even more desperate
This article was first published in the Santa Fe New Mexican, Building Santa Fe on June 25, 2022.
by Kim Shanahan
Twenty years ago custom home builders legitimately claimed they could build a new house cheaper than what it cost to buy an existing home of equal size and quality. They promised future homeowners instant equity. It was largely true—appraisals at closing were inevitably higher than all-in costs of land and construction.
Then came the crash of 2008. Existing home prices cratered. Cost of construction continued to rise. Appraisals did not support cost of construction.
Are we at the same point as a generation ago? Not yet but it’s getting close. If not for labor shortages from a restricted southern border and broken supply chain links driving up material costs, we’d be there now.
When fifty-year-old 1500 square foot homes are selling for $600,000 these days - $400 per square foot - we are very close to shifting the paradigm back to previous decades. The supply-side of the equation is nowhere near meeting the demand side that would establish market equilibrium.
It’s called Economics 101 because there is no simpler truth in a capitalist, market-driven economy.
Many wonder if rising home prices will continue. Unfortunately, for the vast majority of Santa Feans who want a 1500 square foot house but can’t even dream of buying one, the tragic answer is “yes”, meaning prices will continue to rise. Existing homeowners celebrate that reality—they’ve got theirs.
Call it Demographics 101.
Baby Boomers were the largest generation in American history until they bred Millenials. Now Millenials are the largest. Many want to escape an urban dystopia of pandemic proportions. Many can work from anywhere. Outdoor Northern New Mexico lifestyles and hipster vibes of the Meow Wolf district are strong draws.
But their parents, most of whom grew up watching Roy Rogers and Dale Evans on black and white TVs, harbored an urge for wide-open Western spaces. They can finally act on their childhood fantasies. And they can afford the 1500 square foot house. They continue bidding up prices, even if unknowingly at the expense of their kids and grandkids.
The peak year for boomer-births was 1957. They turn 65 this year, the unofficial age of retirement and the official age of Medicare eligibility. Since the boomer-era ended with the births of 1964, that’s seven more years of boomers finding Santa Fe.
Meanwhile, the peak birth year for Millenials, those born from 1980 to 1996, was 1990. They’re turning 32 this year. They are starting families later than any generation in history but biological clocks are ticking. Young families in Santa Fe want a house, not a third-floor apartment. And they deserve a house, if they can find one to afford.
Some local pundits say we cannot build our way to affordability. They also never offer alternatives. With a 20% mandatory affordable housing requirement for home-ownership projects of more than 10 lots, market rate developers already subsidize affordability like no other community in New Mexico and very few in the country.
Taxing existing homeowners through a nominal increase in property tax millage rates to help subsidize affordable housing is the third-rail of local politics. There are no politicians stepping up to even put such a notion to the voters.
The only viable solution is to build more houses. A lot more. More than we ever have in the past.
The cycle of apartment-building has probably peaked and will slow in coming years. The cycle of single-family detached homes will start anew. The demand for them is already upon us and grows stronger every day. Market forces of supply will inevitably respond but let’s make sure those homes have maximum water and energy efficiency. It can’t happen soon enough.
ABOUT THE AUTHOR
Kim Shanahan has been a Santa Fe green builder since 1986 and a sustainability consultant since 2019. He is recognized as a national expert on Green Building Codes after 35 years of general contracting in Santa Fe, New Mexico. With a career spanning hands-on remodeling, luxury custom homes, and affordable housing subdivisions—all encompassing the best thinking in sustainable construction practices—he is well-suited to understand the complexities of 21st century homebuilding. He also writes a weekly column for the Santa Fe New Mexican real estate section titled Building Santa Fe.