Suburban shift eases in Q3

suburban shiftWashington, DC — The suburban shift for single-family home buying, driven largely by the onset of the COVID-19 pandemic last year, continues, but new data revealed that higher-density markets are also making a comeback, according to the National Association of Home Builders (NAHB) Housing Geography Index (HBGI). By contrast, multi-family market share is growing significantly in smaller cities and rural areas, while the rate of new permits is slowing in larger metropolitan markets. The HBGI also shows that the permits are strong in provinces with a high concentration of second homes.

“As more workers returned to the workplace, there has been an uptick in housing production in core urban markets, as well as continued growth in suburban areas,” said NAHB President Chuck Fowke. “And while builders still grapple with affordability headwinds in both small and large markets, this recovery in housing production in some higher-density markets where construction is more expensive highlights the need for policymakers to overcome the barriers to housing supply that drive up house prices.”

The four-quarter moving average for single-family residential permit growth in major metropolitan areas between Q3 2019 and 2020 was 5.6%, while suburbs grew 12.3%. Moving forward a year, the growth rate of new permits over the same four-quarter period between 2020 and 2021 rose to 21.1% for major metro core markets and 30.8% for the suburbs.

“While all regions are showing construction growth, the shift to the suburbs is less pronounced than we’ve seen in previous quarters as some higher-density markets see a rebound even as suburbs continue to expand,” said NAHB chief economist Robert Dietz .

On the multi-family front, an opposite trend is occurring, with apartment construction in lower-density markets growing even faster as high-density markets lose market share.

The latest HBGI data shows that between the third quarter of 2020 and 2021, the share of new multi-family licenses decreased from 40.5% to 37.9% in the major metro core markets. Meanwhile, the license share in small metropolitan regions rose from 24.9% to 27.2%.

Although these percentage changes seem relatively small, they are statistically significant. Historically, year-over-year changes in multi-family market share usually develop slowly and rarely move more than one percentage point higher or lower. This makes these latest year-over-year figures remarkable, according to the NAHB.

The second home markets continue to grow in construction. The growth rate of permits was higher in the traditional secondary housing markets (countries with a high share of existing second homes). Between the third quarter of 2020 and 2021, the growth rate for single-family homes in these second home markets was 36.1%, compared to an average of 23.2% for non-secondary home markets.

“Over the past year, second home markets have increased their market shares, thanks to the increase in hybrid employment, early retirements and capital gains in homes and stocks,” Dietz said.

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