(NAHB) — Residential construction continued to shift toward the suburbs and lower-cost markets, and this trend is especially pronounced within the multifamily sector, according to the latest Home Building Geography Index (HBGI) released by the National Association of Home Builders (NAHB).
During the second quarter of 2021, multifamily construction posted double-digit percentage gains in small metro core and suburban areas, while large metro areas experienced a decrease for multifamily building activity.
“The trend of construction shifting from high-density metro areas to more affordable regions, which accelerated at the beginning of the pandemic early last year, appears to be continuing,” said NAHB Chairman Chuck Fowke, a custom home builder from Tampa, Fla. “Lower land and labor costs, and lower regulatory burdens in suburban and exurban markets make it more appealing to build in these communities. And workers are increasingly flocking to these areas due to expanded teleworking practices and lower housing costs.”
The HBGI shows that multifamily residential construction grew by 14.3% in small metro urban cores and 25.5% in small metro suburban areas in the second quarter. In contrast, large metro core areas recorded a 0.5% decline.
“There was a marked increase in new apartment construction outside large metro areas as people have greater flexibility to live and work in more affordable markets,” said NAHB Chief Economist Robert Dietz. “Similarly for the single-family sector, the HBGI data revealed that construction growth occurred more proportionally in these more affordable areas as well, while declining in terms of market share in the most expensive counties. However, overall single-family starts have slowed in recent months largely because of rising prices and limited availability of a broad range of key building materials.”
The second quarter HBGI also examined the correlation between construction activity and housing affordability. Findings show that since the beginning of the pandemic, growth rates in multifamily construction have been flat in the most expensive housing markets and stronger in more affordable areas. In the segment defined as the “most affordable” regions of the country, multifamily construction posted a 48.3% gain since the second quarter of 2020.
Single-family home building has also experienced a shift toward more affordable markets, though not as pronounced as multifamily. Exurbs and outer suburbs of medium-sized cities accounted for 18.1% of single-family construction in the second quarter – a market share gain of 0.8 percentage points since the fourth quarter of 2019. And while the bulk (45.8%) of single-family construction occurred in core areas of large and medium-sized metros, that share has declined 1.2 percentage points for that period.
As predicted by NAED’s Data Analyst, Erin Prinster, in prior volumes of NAED’s Economic & Industry Sector Outlook: “We were watching these secondary cities. Towards the end of 2019, multi-family investors were spending more capital in secondary and tertiary markets.”
As quoted in the report: “Second-tier cities are where people are moving”, “city living is no longer needed”, “interest has shifted and we predicted this is where the growth would be”.
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