The Economist - UK (2022-03-26)

76 Finance&economics TheEconomistMarch26th 2022

Houseprices

Comingofage

H

omeownershiphadlongbeena dis­

tantdreamformanymillennials.But

afteryearsofputtingoffmarriage,delay­

ingparenthoodandbattlingstudentdebt,

the so­called GenerationRent is at last

emerging asabig driverofthehousing

boomintherichworld.

Typically defined as those born be­

tween 1981 and1996,millennialsmakeup

thelargestgenerationeverinAmerica.As

more of them reach their peak buying

years,theyarebecominga forcetobereck­

onedwithinthepropertymarket.InAmer­

icatheyrepresentthefastest­growingseg­

ment ofbuyers andhaveaccounted for

more thanhalf ofallmortgage applica­

tionsoverthepasttwoyears.CoreLogic,a

research firm, estimatesthat millennial

homebuying was responsible for more

than 60% of property­sales growth in

2020. British millennialsare nowmore
      likelytoowntheirhomethantorent. And
      nearlyhalfofadultsaged25­35inCanada
      haveboughtproperty.
      Moremillennialswillreachtheageof
      32,themedianageforfirst­timebuyers,
      overthenexttwoyearsthaneverbefore.If
      theadditional demandisto besatisfied
      Americanbuilderswillneedtoconstruct
      asmanyas2mhouseseachyear,according
      toJefferies,aninvestmentbank.Thatcom­
      pareswithhousingstartsof1.6min2021.
      But the homebuying frenzy reflects
      morethanmillennialssimplygettingold­
      er.Followinglockdownsandothersweep­
      ingchangestodailylifeduringthepan­

demic,agrowingnumberofmillennials

wantlargerfamilyhomeswithmorededi­

catedofficespaceforremotework.Those

whoalreadyownpropertyaretradingup

formorespace.This,inadditiontostamp­

dutytaxcuts,helpedpushthenumberof

first­timebuyersinBritaintoitshighest

levelinnearlytwodecadesin2021.Some

have brought forward plans to buy. In

America nearly athird of young adults

polledby Clever RealEstate, a property

firm,saidthatcovid­19hadnudgedthem

intohouse­huntingearlierthanplanned.

Themillennialpushisreshapingprop­

ertymarkets. Foronething,millennials

areswappingflatsforfamilyhomes.The

vastmajorityofyoungbuyersinAmerica

boughta single­familyhomein2021.Many

arealsoleavingcities,ortradingexpensive

areasforcheaperones.Youngadultsare

lesstiedtoLondon,saysLucianCookofSa­

vills,a propertyfirm.Thenumberofmil­

lennialsinBritain’ssmallercities,suchas

Manchester,Glasgow,EdinburghandBris­

tol,isgrowingfarmorequicklythanthat

intheBigSmoke.

Remoteworkisalsoopeningupmore

affordableplacestolive.InAmericabuyers

areflockingtosunbelthotspots,likePhoe­

nixandTampa.Zillow,a propertyfirm,es­

timatesthata typicalrenterinSanFrancis­

cowouldhavetosetaside2.4%oftheirin­

comeforsixorsevenyearstosaveenough

fora 20%depositona starterhomeinAus­

tinorPhoenix.Forasimilarpropertyin

SanFranciscotheywouldhavetosavefor

morethan 70 years.

Willmillennialhomeownershipcon­

tinuetopowerthemarket?The growing

numberofmillennialsenteringtheirbuy­

ingyearswillkeepmomentumgoing,and

flexible work could continue to make

cheaperareasmoreattractive.The ques­

tioniswhathappenstoaffordability.Inter­

estratesinmanyplacesaregoingup:the

FederalReserveexpectstoraiseratessix

moretimesthisyear.Thatcouldcoolde­

mand and increase mortgage­servicing

costs.Risinginterestratesinthe1980s,for

instance,depressedhousingmarketsjust

asbaby­boomersreachedtheirpeakbuy­

ingyears.Thedifferencenow,though,is

thatratesarelowbyhistoricalstandards

andexpectedtoriseonlygradually.

Severeconstraintsonhousingsupply,

however,maymeanthataffordabilityre­

mains strained.Shortages oflabourand

materialswillmakeitharderforbuilders

toputnewhomesonthemarket.Record­

low inventory and fierce bidding wars

couldmeanfewerhomestochoosefrom.

Forsomemillennials,thedreamofhome

ownershipmaystillproveoutofreach.n

Millennialsarestokingtheproperty

boom—atlast

riskpremiumthatinvestorsdeemaccept­

abletoholdChineseassetsisrising,lead­

ingsometolower theirallocations. The

longerthewarinUkrainedragson,the

higherthepremiumcouldgo.

Moreover, China’s weakening control

overtheOmicronvariantofcovid­19dar­

kenstheeconomicoutlook.Theresponse

to a worsening outbreak in Shanghai,

hometomanyforeignexecutives,hasbe­

comeanembarrassmentforlocalofficials.

Internationalflightshavebeendiverted. A

chaotic,rollinglockdownofdistrictsisbe­

ingimplemented.Thegatesofresidential

communities are being welded shut to

keepdwellersfromleaving.Thesituation,

inChina’smost developedcity,andtwo

yearsintothepandemic,revealsMrXi’s

lackofanexitstrategyfromthecrisis.The

property market has also continued to

wobble.OnMarch22ndEvergrande,a trou­

bled developer,said Chinese banks had

claimson$2bnofitscash,anotherbad

signforforeigncreditorshopingtorecover

theirinvestments.

Themarketsell­offhasjoltedofficials

intoaction.Thefinancialstabilityandde­

velopmentcommittee(fsdc),chairedby

LiuHe,a topeconomicadviser,isspear­

headingan attempt to regain investors’

confidence.StartingonMarch16thMrLiu

andthefsdchavepromisedto increase

lending growth and push state­owned

fundstobuymorestocks.

China’sleadershipwillsupportthelist­

ingoffirmsinAmericaandeaseitscrack­

downontechcompanies.Housing­market

policieswill become more accommoda­

tive. Andthegovernmentisalsopreparing

totackletheOmicronoutbreakwithself­

testing kits and Pfizer’s Paxlovid pill,

which helps protect infected people

againstseriousdisease.

MrLiuhopesto better communicate

China’seconomicplanstothemarketin

thefuture.Buttheimportantthing,says

LauraWangofMorganStanley,a bank,is

howquickly theauthoritiescanexecute

theirpromises.Itwilltakemorethantalk

tostanchtheoutflows.n

Role reversal

Daily equity flows to emerging markets, $m

Source:Institute of International Finance

600

400

200

0

-200

-400

-600

202 2022

MFJDNOSAJJ

Other emerging

markets

China

CorrectionIn last week’s story on windfall taxes

(“Power grab”) we said that America’s tax on oil

producers was implemented in 1986. In fact it began

in 1980. Sorry.