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Where do young people live?

Credit Suisse publishes Real Estate Monitor Switzerland Q2 2021

Living arrangements for young people are not a topic of particular interest to the real estate industry – or even to young people themselves. Waning optimism, longer periods in education, and the high level of rent in popular city locations mean that staying at home with their parents is now the preferred option for the large majority of 16 to 25 year-olds. Credit Suisse economists believe that for the real estate sector, it would nevertheless be worth considering the needs of young people despite their limited budgets and their propensity to relocate, since they embrace trends and changes more rapidly than any other group of prospective homeowners. New concepts such as co-living and micro-apartments – which make efficient use of scarce residential space and therefore make it affordable – are growing in popularity. In fact, 77% of young people see themselves as potential homeowners one day, saying it is one of their main goals in life. Even so, the desire for homeownership is likely to remain a dream for more and more of them.

Hardly any studies or reports take an in-depth look at young people as a target group. While many articles and books have been written about the needs of older people, material on the topic of homes for young people remains noticeably scarce. In fact, surveys show that young people themselves rarely mention the topic of housing. Here too, the situation is very different from the past, when the housing shortage among young people was one of the factors that sparked street protests.

Young people are barely on the radar of the real estate industry
Pensions and climate change are the topics that most concern young people today. In addition, the young are among the biggest victims of the pandemic. Members of this generation have had an extremely tough time during the COVID-19 crisis, which has severely restricted their leisure activities, forced them into remote learning in many cases, and denied them the best opportunities to earn money. From the financial crisis to the debt and euro crises to climate change and the recent pandemic, the fact that young people have experienced crisis after crisis has caused their confidence in the future to decline compared with previous generations. It is therefore no wonder that today's young people choose to wait longer before leaving the parental home.

Young people are waiting longer before flying the nest
On average, young people are now at least 25 years old when they leave home. Longer periods in education are likely to be one of the key explanations for this: For example, the number of young people passing the matriculation exam in Switzerland rose from 26% to 41% between 2000 and 2018. As a result, they are beginning a career and starting a family later. Post-adolescence – broadly speaking the period in life between youth and adulthood – has been extended due to all of these factors, in some cases until the early thirties. The resulting constraints on income, coupled with a high propensity to relocate, mean that young people are not exactly a prime target group for housing providers.

Shared homes are also on the rise
When they finally leave the parental home, young people tend to head for the big city – if not right in the center then usually within the surrounding urban area. According to Credit Suisse economists, a majority of them move in with their partner and over a quarter choose to live alone, while around one in six opt for a shared home. This is becoming increasingly popular, with evidence of a markedly higher proportion of people in all age categories choosing this option since 2011 – especially from age 25 upwards, when the majority leave the parental home. For young adults aged around 30, living with a partner is increasingly the dominant choice (61%), followed by the alternative of living alone (21%). However, tight household finances and high rent levels at the central locations preferred by young people make finding a home more difficult. Being prepared to accept a smaller living space is one way to live in a central location – and this is where new types of housing come into play.

New types of housing are in tune with the needs of young adults
New types of housing for young adults have become established as a niche in recent years and are generating interest among investors looking for alternative homes. These include student residences, micro-apartments, and more recently co-living. In all three residential categories, an urban environment and the efficient use of limited living space are a common theme. This ensures that what is available is ultimately affordable for users thanks to a lower requirement for space per capita and offers an incentive to investors to focus on this segment. Students represent a rapidly growing target market, which is why investors are increasingly channeling their money into student residences. By offering spaces with a high level of functionality thanks to "smart" furniture, micro-apartments are not just aimed at young people. Indeed, co-living – the latest trend – combines tiny private apartments with communal areas, which is the perfect way to satisfy the strong desire for community and therefore has major potential not only for the young but also for the young-at-heart.

Homeownership is an illusion for young people
A total of 77% of 16 to 25-year-olds surveyed in 2020 would like to own their own house or apartment one day. Given that Switzerland has one of the lowest rates of homeownership in the world at 36.4%, the homeownership aspirations of young adults are striking. For most of them, however, this goal in life will be unattainable, according to Credit Suisse economists. Strict regulations and significant price rises are already resulting in a markedly lower rate of homeownership – especially among those under 50 years of age. For many members of generations Y and Z, this means that the desire to own their own home is likely to remain a dream.

Figure: Declining rate of homeownership among young adults
Change in rate of homeownership by age, 2011–2017, in percentage points

Source: Swiss Federal Statistical Office, Credit Suisse

The full version of the study Real Estate Monitor Switzerland Q2 2021 is available in English here.