Supply and resulting affordability challenges for millennials were highlighted in the most recent NAHB Home Building Geography Index (HBGI). The third quarter HBGI also offers more region-specific insights of single- and multifamily home building trends, including their connections to millennial-intensive areas.
Single-family home building in rural areas posted a solid growth rate of 1.1% for the third quarter of 2019, but lagged in suburban counties of large metropolitan areas, where a decline of 4.3% was registered. This contrast between the best and the worst performing regions for single-family construction illustrates the spatial mismatch between housing supply and housing demand. As millennials age, their ability to afford housing in more expensive areas may improve as incomes expand, but until that occurs, drive-until-you-qualify may be a required strategy for many entry-level home buyers.
In fact, earlier analyses highlighted the decreasing cost of land moving away from the core counties of large and small metro areas. So, these areas offer the prospect of future home construction. Indeed, as seen below, rural areas recorded a relatively strong growth rate of 1.1% over the last four quarters for single-family construction.
But in the meantime, many younger households will choose to rent longer. Consequently, the two highest millennial-dense geographies are core counties of larger and small metro areas where there is a greater availability of rental housing, as seen on the following chart.
Conversely, inner suburbs of big cities have more interest rate-sensitive buyers because such borrowers need to use smaller down payments and higher loan-to-value ratios to make a single-family home purchase. The HBGI data show that 79 of the 199 counties that are suburban counties of large metro areas are also millennial-dense counties. As of the third quarter of 2019, they show the slowest year-over-year growth among the seven regional geographies due to the rise of rates at the end of 2018 and continuing into the 2019.
For apartment construction, growth rates of multifamily permits in millennial counties are highly correlated with those in core counties of large metro areas. The data show that 56 of the 58 core counties of large metro areas are also millennial-dense counties, hence the high correlation as shown below.