Millennials have, by many counts, barely begun their foray into homeownership. Just 35% of 25-34 year-olds own a home in California as of 2018, according to the U.S. Census. But make room for the next generation of homebuyers, because they are ready to jump in.

Generation Z (Gen Z) consists of those born from 1995-2012. This U.S. demographic — which is larger than the Millennial population currently making up the bulk of first-time homebuyers — has some key differences compared to their predecessors.

Perhaps the biggest difference is that, unlike Millennials, Gen Z did not come of age during the Great Recession. By the time even the oldest of this group was out on their own, the jobs market was well into its expansion from the 2008 recession and elongated recovery. Thus, this younger group does not have the same career setbacks and slow income growth that Millennials have contended with.

A survey of 1,000 Gen Z participants aged 18-24 years old found this generation is optimistic (maybe too optimistic), and ready to buy their first home. Survey results of Gen Z show:

  • 87% believe they will be homeowners by the time they are 35; but
  • 27% don’t know how much they will need to save for a down payment and 26% believe they need to save 20% or more.

The misconception about down payments actually aligns with what other first-time homebuyers think, so these young adults aren’t extra naïve — just a regular amount of naïve, as far as first-time homebuyers go. Of course, a 20% down payment is preferred, as it eliminates the need for costly mortgage insurance. But this amount can be prohibitive for first-time homebuyers, and thus they ought to be aware of the ability to put as little as 3.5% down with a Federal Housing Administration (FHA)-insured mortgage or even zero down with a Veterans Affairs (VA) -guaranteed mortgage.

Where will Gen Z be looking to settle down? The survey results showed:

  • 58% value neighborhood diversity in their future home search; and
  • 71% value living close to work.

This is also in line with current trends which show young homebuyers gravitating toward urban areas of the state. No one wants to commute long distances to work, and since most jobs (and diverse communities) are located in city-centers, these neighborhoods are booming.

However, one obstacle facing Gen Z will be a lack of residential construction in the areas they want to live. Not-in-my-backyard (NIMBY) advocates are vocal opponents of dense building in desirable areas. As NIMBYs have taken over the conversation, fewer units are built in these high-demand neighborhoods, causing prices to rise out of reach of first-time homebuyers.

The good news is California legislatures have taken note of the shortage and are taking action to encourage more residential construction, especially of the low- and mid-tier units first-time homebuyers usually frequent. As the number of housing units constructed begins to rebound in the coming years, expect members of Gen Z to be the primary beneficiaries.