Why we must cater infrastructure to the millennial generation

Millennials drive on the same roads as ageing baby boomers. They cross the same bridges as Gen-Xers. And if they get on mass transit, they might offer up their seat to somebody the same age as their grandparents. So what does the existence of millennials matter when public policy makers sit down to determine U.S. infrastructure priorities, since they are using the same facilities as everybody else?

It might matter a lot. There is a conventional wisdom surrounding millennials and their needs and desires that can be extrapolated out to support more spending on certain types of infrastructure. But conventional wisdom doesn’t necessarily hold up when tested. And it could be that there are some large infrastructure requirements that need to be aggressively updated and maintained to cater particularly to millennials, but other assumed priorities might falter over time.

There’s one point that nobody disagrees with: infrastructure in the U.S. is in woeful shape. As McGraw Hill Financial President and CEO Doug Peterson wrote recently in a joint article: “Our domestic infrastructure funding gap – the difference between our nation’s investment needs and governments’ ability to fund construction and repair of critical public assets – is estimated at $200 billion a year.”

So what are some of the points of conventional wisdom regarding millennials’ impact on making those expenditures?

Urbanization and transit: Millennials don’t want to rush out to a suburban house with a white picket fence, we’re told. They like urban areas, whether they’re older cities being revived by millennial in-migration (Brooklyn is a prime example), a once middling-sized city now exploding (think Austin) or more urban-like areas in the suburbs (too many to mention).

Some clear infrastructure trends can be envisioned as a result of increasing urbanization. For example, the U.S. has seen a significant expansion of light rail and other urban rail systems in recent years, and the demand for their growth remains strong. One recent development: in supposedly car-centric and free-market Phoenix, which funded its first light rail system through a sales tax increase in 2000, voters in August approved raising that sales tax further to fund even more growth of light rail, bus transit, and bike lanes, the latter a millennials’ priority. Transportation for America, a pro-transit trade group, claims on its website that the average approval rating for public transport ballot measures in the last 10 years is 70%, and more recently has been well above that.

Roads: So what does an urbanization trend mean for road infrastructure? When the urbanization trend was combined with declining figures on gasoline consumption and miles traveled, it often led to one conclusion: the US was driving a lot less, and forecasts about road infrastructure needs were probably overshooting the mark.

One notable statistic: the Federal Transit Administration said that youth Passenger Miles Traveled (PMT) on all modes of transportation in 2009 was just 80% of what it was 1995 and 2001, and youth Vehicle Miles Travelled (VMT) was only 75% of what it was in those years.

But the decline in driving is showing signs of being ephemeral, and as gasoline prices have fallen, driving – and congestion – has returned. As far as car buying, MHFI unit J.D. Power & Associates has said that Gen Y, which means anybody born in the 1980s or 1990s, has boosted its share of the new car market from 18% in 2010 to 28% in the first quarter of 2015. Not exactly what you’d expect if they’re shying away from purchases.

Additionally, the conventional wisdom that millennials aren’t interest in buying houses is beginning to wither in numerous reports that read like this one. And it’s reasonable to expect that some of that housing is going to require auto transportation to get to work and school; not everybody is going to take the local metro system, should it even exist.

The whole idea that urban growth means a zero sum equation with the suburbs also is proving false; this is not going to be a light rail versus asphalt showdown. For example, the city of Austin grew from about 656,000 in the 2000 census to 790,000 10 years later. Suburban Williamson County, which includes booming Round Rock, went from 250,000 to 423,000, a far bigger percentage increase than the core city.

Housing: So even as there is growing acceptance of the idea that millennials maybe do in fact want to own their own housing someday, there are two trends that developers or sellers seeking to capitalize will need to respect.

The first is that the desire may be there but the dollars may not, and student debt is a big part of that. “In our downside scenario… massive student loan debt could keep this generation from spending and

cost the world’s biggest economy $244 billion ($49 billion a year) over the next five years,” S&P Ratings US economist Beth Ann Bovino wrote in a recent report.

There’s one clear consequence to that debt: “The pace of household formation and the rate at which Millennials head their own households is declining,” the report said. That number was 41.8% in 2006, for people ages 25-29. By 2014, it was down to 32.7%.

“The downward homeownership trend among Millennials has a number of explanations,” Bovino wrote. “Research shows the most common reasons renters cited for renting (rather than owning) a home are the lack of a down payment (45%) and failing to qualify for a mortgage (29%),” citing Fed data. The report adds that 10% of renters report that they are looking to purchase a home.

And it isn’t a great time to be a renter either. As this report from the Joint Center for Housing Studies of Harvard University notes, more than one in four renters in 2013 were “severely burdened” by rents that ate up more than half their incomes. That figure—11.2 million households – is up more than 3 million since 2000.

And other things: Housing, transit and roads can sometimes mask the fact that there are other needs. Conventional wisdom holds that millennials like to fly, and the proposed rebuilding of New York’s LaGuardia airport is only the most obvious—and needed – step toward meeting that demand. Drought plus climate change will spur interest in water infrastructure projects such as rainwater capture to grey water processing and reuse.

And all of these infrastructure desires and needs will come against a backdrop of states and municipalities squeezed by pension costs, and a millennials generation that in many cases may need years for their own wages to recover from the Great Recession-caused wage hit.

Setting infrastructure priorities in coming years could be an interesting show to watch.

Author: John Kingston, President of the McGraw Hill Financial Global Institute

Image: Commuters wait for the subway during their morning commute in New York June 18, 2015. REUTERS/Lucas Jackson