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Residential Construction Continues Suburb Shift

Wednesday, September 15, 2021

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A new quarterly Home Building Geography Index report from the National Association of Home Builders reveals a continued shift of residential construction within suburban and lower-cost market areas.

The trend was noted to be especially pronounced within the multifamily sector.

“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. “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 Report

A quarterly measurement of building conditions across the country, the HBGI uses county-level information about single- and multifamily permits to gauge housing construction growth throughout various submarkets.

New this year, the NAHB updated the HBGI to include a new segmentation of the housing market based on measures of housing affordability using the ratio of the median value of all owner-occupied housing units by county, relative to the median income of all residents in that county, as reported in the 2019 five-year American Community Survey in its second-quarter report for 2021.

Total population for the least-affordable counties was reportedly to be 161 million (49.9% of total U.S. population), while the total population for the most-affordable counties was reported to be 9 million (2.8% of total U.S. population).

Rajesh Pandit / Getty Images

A new quarterly Home Building Geography Index report from the National Association of Home Builders reveals a continued shift of residential construction within suburban and lower-cost market areas.

“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.”

In the least-affordable counties (top price-to-income quintile), the HBGI reported:

  • 47.6% of single-family construction for Q2 2021;
  • 11.1% single-family quarterly growth rate for Q2 2021;
  • 46.3% single-family year-over-year growth rate (Q2 2021 vs. Q2 2020); and
  • 25.8% single-family four-quarter MA of the year-over-year growth rate.

The most affordable counties (bottom price-to-income quintile) reported:

  • 0.7% of single-family construction for Q2 2021;
  • 43.9% single-family quarterly growth rate for the Q2 2021;
  • 29.9% single-family year-over-year growth rate (Q2 2021 vs. Q2 2020); and
  • 22.4% single-family four-quarter MA of the year-over-year growth rate.

The report also revealed that single-family home building experienced a shift toward more affordable markets, although the shift was not as pronounced as multifamily construction. 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.

In multifamily, the trends in the least-affordable counties included:

  • 68.0% of multifamily construction for Q2 2021;
  • 8.2% multifamily quarterly growth rate for the Q2 2021;
  • 27.0% multifamily year-over year growth rate (Q2 2021 vs Q2 2020); and
  • 4.0% multifamily 4-quarter MA of the year-over-year growth rate.

In the quintile for the most-affordable counties for multifamily, the report outlined:

  • 0.4% of multifamily construction for Q2 2021;
  • 18.3% multifamily quarterly growth rate for the Q2 2021;
  • 88.9% multifamily year-over year growth rate (Q2 2021 vs Q2 2020); and
  • 48.3% multifamily 4-quarter MA of the year-over-year growth rate.

Additional key findings in the Q2 2021 HBGI included:

  • Single-family home building posted comparable double-digit gains in all seven regional submarkets;
  • Core counties of metro areas experienced considerable shrinking of their market shares of total multifamily residential construction activity—from 40.2% in Q1 2021 to 38.7% in Q2 2021;
  • Multifamily growth rates were moderately higher in counties that had more affordable housing, which was also evident in the previous quarter; and
  • In the ongoing pandemic, the most- and least-affordable counties lost market share in single-family home building to counties that placed in the middle three quintiles of housing affordability, dropping from 50.9% in Q4 2019 to 48.3% in Q2 2021.

A copy of the full report can be found here.

Other Multifamily Construction Data

Earlier this year, in May, the NAHB released data from its Multifamily Market Survey that revealed that market confidence in new multifamily housing has increased in the first quarter of 2021.

The MMS produces two separate indices; the Multifamily Production Index increased eight points to 51 compared to the previous quarter and the Multifamily Occupancy Index increased one point to 59.

This report was reported to be the first time the MPI had been over 50 in seven quarters.

The MPI measures builder and developer sentiment about current conditions in the apartment and condo market on a scale of 0 to 100. The index and all of its components are scaled so that a number above 50 indicates that more respondents report conditions are improving than report conditions are getting worse.

The MPI is a weighted average of three elements of the multifamily housing market: construction of low-rent units-apartments that are supported by low-income tax credits or other government subsidy programs; market-rate rental units-apartments that are built to be rented at the price the market will hold; and for-sale units or condominiums.

According to the NAHB, all three increased in the first quarter: the component measuring low-rent units rose four points to 46, the component measuring market rate rental units increased six points to 54 and the component measuring for-sale units jumped 13 points to 52.

Also this quarter, though, the report introduced the MOI, which replaced the Multifamily Vacancy Index. The MOI measures the multifamily housing industry’s perception of occupancies in existing apartments. It is a weighted average of current occupancy indexes for class A, B and C multifamily units and can vary from 0 to 100, with a break-even point at 50, where higher numbers indicate increased occupancy. With a reading of 59, the MOI has improved over the last three quarters.

In February the NAHB dubbed the home remodeling market “more than fully recovered” from the COVID-19 pandemic. The comments were made during an online press conference hosted by the association during the 2021 International Builders’ Show.

In addition to looking at current numbers, the NAHB forecasts that the residential improvements sector will continue to grow at a healthy pace for the next two years.

More specifically, over the next two years the NAHB predicts that remodeling spending for owner-occupied, single-family homes will increase 4% this year and another 2% next year.

Other professionals at the event noted that demand and backlog remain high, and the biggest factors that are prohibiting the sector to grow more are materials prices and labor shortages.

   

Tagged categories: Condominiums/High-Rise Residential; Economy; Good Technical Practice; Home Building Geography Index (NAHB); Multifamily; NA; NAHB Remodelers Index; National Association of Home Builders (NAHB); North America; Projects - Commercial; Residential; Residential Construction; Residential contractors; Single-family

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