For the longest time, the McMansion –mass-produced, sprawling, multi-level/multi-floor houses in the suburbs –was a symbol of prosperity, a trophy that one claims after spending years on the corporate grindstone, the perfect embodiment that hard work pays off, and is one of the highest rewards of the American way of life.
At least, that’s how the Boomers are trying to sell it to the millennials, but unfortunately, they’re not biting.
With many of the baby boomers (i.e. people born after the second world war and up to the mid 60s) now entering retirement age, many of them are starting to downsize and simplify their lifestyle, which means off-loading their McMansions to whoever wants to purchase them. This means targeting the Millennials, that oft-cited killer of industries, who are now entering their late 20s and 30s and can now afford their first home. There’s just one problem: millennials still can’t afford it.
‘Nominal Loss Aversion’
One of the main reasons that kids nowadays can’t afford the McMansions their forefathers once bought with the money they earned from their 9-to-5 grind comes down to two things: complex economic factors that started in the 70s and a little thing called Nominal Loss Aversion.
The first reason is pretty straight-forward: the money boomers earned back in the day went a whole lot further than what their grandkids are earning. We won’t get into too much detail (there are tons of studies regarding the difference of prices between then and now) about the exact economic factors that caused this, but it’s a pretty significant reason as to why your granddad somehow afforded a mansion, two cars, 5 kids, a golf club membership, and yearly trips to the Bahamas paid for by their minimum-wage job (mild exaggeration but you get the idea).
The other reason is slightly simpler, despite its name: nominal loss aversion. Nominal loss aversion simply means that boomers don’t want to sell for less than what they’ve invested. Makes sense, however, this doesn’t take into account inflation, current pay scale, and the modern economy in general. Remember: the money boomers invested into their McMansion is simply something Millennials can’t afford with what jobs are paying them now and how much their money is worth at the moment.
Simply put: two bits could have bought you a shave-and-a-haircut back in the day, but now, that’s not even enough money for chicken nuggets.
Another reason millennials are shunning the McMansions of the boomers is the sheer disconnect between the values of those 2 generations. While boomers preferred the quiet of the suburbs to raise their multi-child families in their multi-floor houses, millennials prefer living in the heart of the city, the apartment life for their max 2-child families. Boomers prefer driving their big, gas-guzzling Cadillacs to work, millennials take the train. Boomers enjoy the idea of owning land; millennials simply don’t care enough for real estate.
For better or worse, the millennial generation enjoys simplicity and living sparsely, in stark contrast to the boomers who enjoy everything in large quantities. The younger generation enjoys minimalism, partly because they can’t afford anything beyond that, but mostly because of rising concerns over the increasing footprint of production and how it’s affecting the planet. For millennials, the boomer life was all about excess, something they can’t (or, perhaps, won’t) resolve with their save-the-planet mindset.
But Who Killed the McMansion?
So while it seems that the prime suspect for the murder of the McMansion is the millennial generation, are they really to blame?
Well, technically, the economy did.
McMansions were built, popularized, and prized from the 70s and all the way up to the mid-2000s, when the buying power of the boomers and the gen-x’ers started waning. And then the 2008 recession hit; the housing market bubble popped, the dollar went into a tailspin, and real estate prices tumbled.
But the previous generations, with more than 2 decades of income under their belt, had enough money to keep themselves afloat. Unfortunately, the same can’t be said about the millennials, who found themselves at the crash site of the economy, entering the job force with some of the lowest wage offerings in history and some of the highest student debt rates ever.
The lack of any kind of proportionate pay for their work meant that excessive things like large houses or cars left much to be desired for the younger generation. Advances in technology, as well, helped redefine the mindset, purpose, and desires of the millennial market: contrary to what many boomers believe, the digital age actually connected people more thoroughly.
Of course, whether or not the increased connection people have with each other is good or bad is up for debate, the fact of the matter is, technology gave people a way to connect with their peers from all around the world, with the internet becoming a digital Silk Road of-sorts for new ideas. We’re already aware of how millennials shifted the marketing industry to be customer-centric rather than brand-centric thanks to technology, and this mindset is carried over to the real estate industry.
So while millennials may have hammered in the nails on the McMansion coffin, it was a combination of the economy and technology that ultimately pulled the trigger on a prized possession of the American boomer.