Millennials, 29 to 44 years old, behave very differently than previous generations. No, we’re not talking about their desire for mobility, love of kombucha or tattoos or the perception (often mistaken) that their work ethic just isn’t as strong as that of previous generations.

We’ve written extensively about the fact that fewer young people are marrying, and many are opting not to have kids. In demographic-speak, the U.S. fertility rate has slipped well below the “replacement rate”, which has profound implications for the economy and housing, in particular.

To maintain a stable population, women need to have an average of 2.1 children. This figure – the replacement rate – was a given in the U.S. until 2007, when it first dipped below this level. In 2024, it fell to 1.6, a record low.

Soon, this lower birthrate will translate to lower demand for childcare and smaller class sizes from pre-K through elementary school – and after that, consolidation of middle schools and high schools Looking ahead, we’ll have broader societal challenges – like fewer workers to finance social security and Medicare for a growing elderly population. Unless birthrates rebound or the U.S. accepts large immigration, Millennials will likely see the U.S. population shrink during their lifetimes.

Drilling down deeper, we find several factors at play. While married women are indeed having fewer kids than a generation ago, they’re still doing so at a level near the replacement rate. One of the key factors for the decline, according to demographic forecasts, is that a substantial proportion of young women today will never marry.

During the 1960s and 1970s, just 6% of 40-year-old women never married, according to the Pew Research Center. By 2000, that had grown to 15% and by 2021, it was around 25%. These women – one in four – who opt out of marriage put tremendous downward pressure on the overall birthrate. Obviously, they demand very little childcare and far fewer classrooms – and are far less likely to purchase homes than their married peers.

You don’t need to look too far around the bend to see these trends happening in real time. In many parts of the U.S. – regions with older, primarily white residents, death rates already exceed birth rates, translating to falling populations. The Washington Post reports that most women 18 to 44 aren’t married – that’s double the rate of the early 1980s.

The economy plays a role: 70% of Americans surveyed say raising kids is unaffordable. Lifestyles contribute as well: More women are in the workforce than ever before and the push-pull of raising kids is an awful lot for working moms.

The most dispiriting element: young people are pessimistic about the future. Politico reports that 46% of Americans believe that America’s best times are behind us, agreeing with the statement “The American dream no longer exists.” A majority of younger people, 52%, are so dispirited that they say that “we need radical change” to “make life better in America.”

Throughout history, having more children was seen as a sign of confidence in the future. It’s instructive that the declining birthrate from 2008-2024 started during the Great Financial Crisis and continued through the sluggish economic recovery, the political polarization of the past decade and the Covid-19 pandemic. When young people think the country is on the wrong track, having a child and buying a home aren’t top of mind.

So how do demographics impact homebuying?

In 2014, the median first-time homebuyer was 31 years old. Today, he or she is 40 – the oldest on record. There are many factors at work and the demographic trends noted above are a major component. The affordability gap also plays a significant role. Home prices have risen about 50% since 2020, driving up downpayments. And monthly homeownership costs are 1.5 times the cost of rent ($3,336 vs. $2,234, according to CBRE Research data from October 2025).

The high costs of purchasing a home and homeownership mean many more people are staying in apartments and rental homes much longer. This is exacerbated by the fact that we’ve had a shortage of housing for decades. Land is scarce, myriad environmental and labor regulations delay the entitlement process and import tariffs and immigration controls add to the cost of materials and labor, respectively. The magnitude of the shortfall varies by market, but the national shortage is estimated at three to five million units (both single-family homes and apartments). The problem is decades in the making: According to the New York Times, we built fewer homes per 100,000 people in 2025 than we did in 2005, 1995, 1985 or 1975.

Case Study: San Diego, CA, Pathfinder’s headquarters. We can attest that entitling land for single-family subdivisions is brutal, despite the very high cost of buying a home and the massive shortage of housing. The median home price in San Diego is now approaching $950,000, according to Realtor.com. And the San Diego Housing Federation estimates the county’s shortage at 90,000 units. It would take a decade to dig out of that hole based on the 9,000 units permitted in 2024. That keeps home prices artificially high.

The same challenges impact San Diego’s rental housing market. The majority of San Diegans live in apartments and multifamily represents the bulk of the housing creation (and the housing backlog). Building new apartment properties is every bit as daunting as building new single-family homes.

Defining the problem isn’t difficult – it’s kind of like the definition of inflation. Too much money is chasing too few homes. San Diego’s chronic underproduction of housing is part of a national phenomenon.

Mortgage interest rates, which have remained elevated, are a big contributor to the high costs. With tremendous uncertainty about the inclinations of the successor (whoever it may be) to current Federal Reserve Chair Jerome “Jay” Powell, predicting Fed Funds or mortgage rates a year out is tricky, making it hard for prospective home purchasers to bank on lower rates.

That’s the demand side of things. On the supply side, we don’t see the forces that will reduce NIMBYism (Not in My Backyard), the dynamic which adds to regulations, planning and development timelines and the cost of building new housing units. And homebuilders and apartment developers need strong stomachs to invest equity into a multi-year land entitlement project and then take on floating rate construction loans for a multi-year construction project in an environment with so much interest rate uncertainty.

At the core of housing politics: Those people who already own homes have the loudest voices in local politics and neighborhood planning groups. Generally, homeowners like their neighborhoods just as they are – they’re generally not pining for that shiny new housing development or especially not that dense apartment building – and the associated construction noise, permanent additions to traffic and other pressures on the community and its resources.

This is where leadership matters. If local governments and community planning organizations modeled responsible behavior – looking for ways to speed the entitlement process and reduce barriers and costs – community members might just follow their lead and behave in a more responsible manner. In our current “every man for himself” environment, inefficiency and short-term thinking leads to a downward spiral that creates further housing shortages, higher home prices and rents and increased polarization, inequality and division. Each of us – elected officials and community members alike – has a role to play and may we each endeavor to work more constructively in the year ahead.

Mitch Siegler is Senior Managing Director of Pathfinder Partners. Prior to co-founding Pathfinder in 2006, Mitch founded and served as CEO of several companies and was a partner with an investment banking and venture capital firm. He can be reached at msiegler@pathfinderfunds.com.