Confession: Over the past four months I’ve become addicted to the panic button. COVID spike, for whatever reason: panic button; businesses shuttered, boarded up: panic button; no sports: panic button.
I’ve pushed that button so many times that the word “panic” is starting to wear off. It’s become a habit, like riding BART and going to the gym used to be, back in the world.
And nowhere is the temptation to hit that button greater than in real estate, a world with a longstanding tradition of boom and bust. Rents are up: panic; rents are down: panic; they tore down a gas station on Valencia and are planning to put 24 new condos in its place. Panic.
The last four months? Mega-panic. We lead with panic now, and it doesn’t help that sometimes…maybe often…we’re being led by the nose to panic, even if the situation maybe doesn’t require a full freak-out.
Take for example a real estate story now making the rounds. First published in Zillow, it suggests that members of Generation Z (those ages 18-25) are moving home in unprecedented numbers — a situation certain to lead to a collapse of the rental market. Published on June 10, it was quickly picked up by everyone from Yahoo News to the New York Times.
“Rental Income Menaced by Gen Z Migration to Mom’s,” shouted The Motley Fool.
“Skyrocketing unemployment across the U.S. has prompted millions of adults to move back in with their parents,” screamed Yahoo News.
It sounds pretty bad: $726 million in lost rental revenue. Should we panic?
As is the case with most nightmare fuel, this story is grounded in reality. A ton of kids — 2.2 million, three times the next-highest total recorded in the past five years — ran home this spring, and as of April, Zillow worries, “a majority of those who have moved home are not seeking employment.”
This is definitely true because, as this story omits, a huge number of these Gen Zers, perhaps enough to explain the difference between the “normal” amount of 18-25 year-olds who live at home (53%) and this year’s (61%), are technically still in college. They were sent home in March, when COVID shut-downs began.
Take it a step further: a percentage of these cohorts are Class of 2020, sent home along with everyone else in March. In a normal year, according to a 2019 survey commissioned by TD Ameritrade, approximately half of new graduates come home, at least temporarily.
Here in San Francisco where, as one recent graduate told me, “everyone (he) knows moved back home after they graduated,” living with your parents, at least for the short-term (and often the long-term) is the only way to stay local.
The other option is to move away… …to somewhere inexpensive, like Austin, Texas or Cincinnati. Generation Z makes up almost 20% of the rental market in these cities. If it turns out that the trend toward the downstairs rec room becomes permanent, then yes, these cities could see their overall rental market impacted.
It’s unlikely to play out that way, though; these cities have a high percentage of young renters because they’re inexpensive. It shouldn’t take much to get Junior out of the basement. Which is not the case here in San Francisco where, per Zillow, Gen Z makes up only 9.5% of the local rental market.
Frankly, I have to wonder if the real number is that high. Even after our recent market softening, one-bedroom apartments in San Francisco still fetch over $3,000 a month. Also, more than 60% of our existing renters live in rent-controlled units.
Between these two market extremes there’s not much housing left over for young, entry-level workers. For young San Franciscans entering the work force, hunkering down in your childhood bedroom was a thing long before COVID sent everyone home early.
To be clear, this story isn’t all vaporware. When Zillow says that “Gen Z’s next move could shape the future of the rental market,” they’re not wrong. Every generation has an impact on the rental market, and if this one gets comfortable at home then yes, the overall market will further soften. The issue I have with this story, though, is that it prioritizes the sexy — “COVID-related unemployment sends Gen Z scampering home; future of rentals threatened” — over the prosaic — “Schools close early; students go home.”
During these perilous, interesting times, we’re not exactly lacking in reasons to panic. There’s no reason to pile on by casually turning an oddity into another crisis.
The Market Musings real estate column appears every other Wednesday. Larry Rosen is a San Francisco-based writer, editor, podcaster and recovering former Realtor. He is a guest columnist and his viewpoint is not necessarily that of the Examiner.