Exploring housing related spending habits of India’s youth

Very often we encounter claims about how real-estate and automobile sectors are witnessing a fall in revenue due to the decreasing demand from the millennial generation. The lack of evidence supporting the argument is not surprising; young people make good scapegoats given that they are seen as commitment phobic and unwilling to invest in assets like homes and cars. Such generalizations are not helped by the fact that Millennials are not buying homes as much as the previous generations in the United States and some other Western nations. However, popular opinion about the same being the case in India lacks empirical evidence. This article advocates conducting thorough studies and data analyses to better understand the way the youth of the country spends on housing, and what their experiences, predispositions, and external constraints are. To begin looking at a question or formulating a hypothesis about it, looking at data around housing consumption trends in other countries can be helpful.

In India, real estate has historically been an asset that young people have remained aloof from. Because housing loans were scarce, expensive and the cultural norm was to purchase homes from savings, most homebuyers could accumulate sufficient wealth only by a much later age. As a result, a majority of homeowners were in the age group of 45-55 years or even closer to retirement. By late 1990s and early 2000s, however, home loans became cheaper and readily accessible. The notion of using borrowed money to buy things had gained more acceptance and the accompanying tax benefits of purchasing housing, encouraged younger people to invest in real estate. The ANAROCK’s consumer sentiment survey H1 2019 reveals that the participants serious on buying homes belong to the age groups of <25 years, 25-35 years, 35-45 years, and 45-55 years categories in the proportion of 7%, 20%, 37% and 25% respectively. The first two categories, where young people are included, were extremely limited till the early 2000s. 

As there is a dearth of data on housing with respect to the demographics of age in India, it might be useful to look at the existing work on the same in China, a country that shares more than one similarity with the Indian economy. A paper that has analyzed the differences in the Housing Bubble in the United States and China argues that if we look at the demand-side of things, while in the United States, many homeowners were young and highly leveraged (fuelled by sub-prime lending), housing investment in China is fueled by middle-aged households, saving for retirement or for their children. This has both economic and cultural reasons some of which are listed below:

1. High opportunity cost - Investment in avenues other than housing does not yield good returns. To illustrate this point, the paper contends that the average real interest rate on Chinese bank deposits has been about zero over the past decade. Tight capital controls prevent investing in foreign countries.  Similarly, the Shanghai Stock Exchange Index has had average annual real returns of zero from 2001 to 2016. In the same period, the annual real returns to real estate in Shanghai has been more than 10%. 

2. The Agrarian socio-economic fabric - This makeup has attached significance to owning land/property.

3. Necessity for marriage - Home ownership is considered essential to get young men married. From 2013 data, we can see that the homeownership rate for Chinese citizens below the age of 35 is as high as 55%. The corresponding number in the United States is 37%. A point to note here is that most of these young homeowners have purchased houses using their parents’ savings. This further points to the fact that cultural differences in collectivist China and the more individualistic West can alter the demographics of home ownership.

Observing China’s housing bubble trends, we can identify several themes to study the Indian context. The first is that if young people have increased or decreased their housing demand, a major determinant of that would be the availability of alternative investment opportunities. If gains from the capital market or other assets are higher or more reliable, then the demand for housing would go down. Thus, collecting data comparing returns would be a good starting point. The second question is more qualitative. It would involve trying to understand the significance people attach to buying property. For example, the ritual of Grah Pravesh is an extremely auspicious ceremony that homeowners are expected to perform. In such a cultural milieu, buying one’s own home would always be more revered than renting it out. 

The US data on Millennial housing consumption, on the other hand, is abundant and allows us  to make claims like the one we began with. Some of the reasons behind the same are mentioned:

1.  Factors specific to the US like the rising student debt and tighter lending standards post the 2008-09 recession - As of 2020, the student debt in the US hit $1.6 trillion. Thus, college graduates are increasingly finding it difficult to even save up enough money for a 20% down payment. Secondly, it is also a fact that Millenials deal with more stringent lending regulations than the previous generation (reforms necessitated by the Housing bubble crash and consequent recession due to subprime lending).

2. Unaffordability - If mortgage payments exceed 25% of a homeowners' monthly income, it is generally taken to imply that the homes are unaffordable for prospective buyers. As housing prices have risen to an extent that incomes have not, Millennials find it hard to buy real estate even if they want to. 

3. Trends in marriage - The US Census Bureau estimated that less than 60% of people aged 25 to 34 live with either a spouse or partner in 2018 (the figure was 80% in 1967). The average age of getting married, having a child has also gone up. As such events are ‘typical triggers to buying  a home’, home ownership for Millennials would be delayed. 

4. Urbanization - According to Pew Research, 88% of Millennials live in metropolitan areas (2018). As these cities are extremely densely populated, housing prices have risen so much that most of them can barely afford rents, let alone buy a home. 

USA’s story gives us more ideas to work with. We would have to study the changes in lending practices by banks and other financial institutions. As previously discussed, Indian regulations around the same have eased up allowing greater financial leverage options for the younger cohorts. However, as India is very diverse in terms of regional and income disparities, to avoid generalizations, we must also look at how access to housing loans can be affected by whether one lives in urban or rural areas, as well as depending on the overall household income. 

The second issue pertains to more nuanced changes in the aspirations and expectations of young people in India. Just like the USA, the average age for marriage, and having children is increasing in India. If we assume that these play a role in the decision to buy a home, then trends in marriage can be another factor. 

The last theme is probably the most relevant in view of the rapid urbanization in India. Metropolitan cities like Mumbai, Bangalore, Delhi, Chennai are touching record levels of population density. Lack of employment opportunities have been pulling people away from villages and towns to these cities. Urban housing is a well-documented concern in India. While hundreds of thousands of immigrants (most of whom are very young) continue to live in slums and other sub-standard dwellings, the rising costs of living have made it difficult to buy housing even for the elite sections of society. Thus, if we expect the population in cities to rise in the future, the constraints on homeownership for young people will only continue to rise.

This article does not make any conclusions, the purpose is to explore themes and ideas that may help studying housing ownership from the perspective of young people. Before making any claims, this piece strongly suggests a nuanced understanding of the various factors that affect the demand and supply of houses. It would be irrational to attribute our hypothesis to factors on only one side. In other words, while it might be true that housing is becoming increasingly unaffordable, we cannot rule out the changing consumer trends - people may simply prefer renting out more to avoid the hassles of purchasing real estate. They might be hesitant to bear the liability of mortgages for a large chunk of their lives or they might feel constrained by tying themselves to one property when their jobs can take them anywhere. Again, these theories would be valuable only when we can conclusively say that there is a decreasing trend in young people buying homes, something that is not supported by data as of yet.