NAHB spots new home building trend in smaller metros

"The geography of home building has shifted over the last two and half years"

NAHB spots new home building trend in smaller metros

Home construction growth in large metros has slowed down in recent months while activity in smaller cities and rural areas continues to increase, according to the National Association of Home Builders (NAHB) new report.

The reason behind this trend, NAHB said, is the pandemic mass migration followed by housing affordability constraints in high-cost and highly regulated markets as interest rates increase.

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“The geography of home building has shifted over the last two and half years, with more single-family and multifamily construction occurring in lower density markets,” said NAHB chief economist Robert Dietz. “This shift was first caused by the initial impact of COVID on housing demand, which favored lower density neighborhoods. The shift continued in recent months due to housing affordability conditions that are causing both prospective renters and buyers to expand their geographic search for housing, aided by hybrid work patterns that allow for a combination of remote and office work.”

NAHB’s Home Building Geography Index (HBGI) showed that the market for single-family home buildings in big metro core and inner suburbs has declined from 44.5% to 41.6% from the fourth quarter of 2019 (pre-COVID) to the second quarter of 2022.

In contrast, single-family home building in outer suburbs in large and medium-sized metros has grown from 17.4% to 19% during the same period. Single-family home construction in small metro core counties rose from 28.8% to 29%, and home building market share in non-metro/micro counties was up from 9.4% to 10.4%.

“Looking at the last 12 months, single-family production has slowed in all regional submarkets, both large and small, due to ongoing building material production bottlenecks, construction labor shortages, and the Federal Reserve’s tightening monetary policy,” said NAHB chairman Jerry Konter.

This pattern also holds true for the multifamily market. The market share of multifamily construction in large metro core areas dipped from 41.7% in Q4 2019 to 39.3% in Q2 2022.