Younger Millennials Could Save America's Birthrate

(Bloomberg Opinion) -- The data for 2017 is in, and the results are clear: We're still waiting for American birthrates to rebound from the great recession. Nine years into this recovery, it would be easy to figure that if the birthrate hasn't recovered yet, it won't. But it could be several more years before we know whether the U.S. has settled into a new normal of lower birthrates.

The housing market may provide some hope for an eventual rebound, and a theory for how it could happen. Housing relates to the lifecycle of family decision-making. First, perhaps, you have young people getting their educations and settling into careers where they create the financial foundation to have a family. Then, there's coupling up and, for those with the resources and desire to do so, buying a home. Finally, these couples decide whether to have a child, and those who do decide whether to have more children. Even when the economy is not throwing up obstacles, the whole process from beginning college to having a child can take 10 or 15 years.

And the economy has definitely thrown many obstacles at this generation of would-be parents. After the recession that began in 2008, the unemployment rate for 20- to 24-year-olds didn't get back to 2004 levels — itself not the strongest year in the labor market — until 2016. That made it tough for young people to get a foothold in the labor market, which also led young people to stay in school for longer, setting back careers by years. How exactly were they supposed to save up a down payment for a first home?

Making matters worse, because so many people lacked the finances to buy a home, they were forced into renting, driving down apartment vacancy rates and leading to rents that were growing faster than incomes in many cases. It's only been within the past year that the rental vacancy rate nationwide has begun to rise, which, combined with all the apartment construction over the past several years, has finally started to alleviate the pressure in the rental market.

Continuing the pain, with the labor market recovered and some people now in their 30s finally in a position to buy a home instead of rent, the entry-level housing market has become extremely tight, with minimal inventory and rising prices. It will take years of construction to restore balance to the housing market, particularly at the entry level, just as it has in the rental market.

These constraints apply to people born in the early and mid-1980s, but it's a different story for those born beginning in the mid-1990s. And that's why we shouldn't be too quick to draw a permanent conclusion about American birthrates.

Someone born in 1985 hit every milestone at the worst moment: a bad labor market in their mid 20s when they needed to be building careers, and then a tight rental market in their late 20s when they couldn't yet afford to buy a home, and then a tight entry-level-housing market in their mid 30s when they were established enough to consider buying. The experience of people 10 years younger will turn out to be far different.

That person born in 1995 finds themselves in a labor market with an unemployment rate for people their age below 7 percent, the lowest level in nearly 50 years. As older millennials look to buy houses, younger people may now find themselves in a rental market where rates are flat or falling. Those even younger, who are graduating high school soon, may decide to skip college as employers become desperate for workers and willing to train them.

For the first time in a long time, the youngest people in the labor market weren't hurt by the financial crisis, with those in college and younger perhaps having no memory of it at all. And for older Americans, enough time since the crisis has passed that homeownership rates are starting to increase.

The homeownership rate for people under age 25 actually bottomed out in 2014 at 21.7 percent. It's increased each of the past three years, not by a large amount, but stands at 22.6 percent as of the end of 2017. For those in the next three age groups — 25 to 29, 30 to 34, and 35 to 39 — homeownership rates all increased in 2017.

It all points to reason for hope that birthrates won't stay this low. Perhaps it's too late for older millennials — those born in the early and mid-1980s — to have as many children as parents of previous and subsequent generations would. But for those born a decade or more later, those structural economic problems related to employment and rental increases have largely abated. And there's still time for government and employers to address child-care and parental-leave policies too.

The problem is, because Americans have pushed back the traditional markers of adulthood like marriage and homeownership, we won't know for five or 10 years whether that improved economic standing leads this cohort to a decision to have more children in that peak window between the ages of 25 and 34.

If economics were the main culprit in the slide, there are still reasons to believe birthrates can recover for the next generation.

©2018 Bloomberg L.P.