HBGI: Increased Home Building in Lower-Density Markets Ahead

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The COVID-19 pandemic is likely to hasten a housing trend already taking place across the nation – residential construction activity that is expanding at a more rapid rate in lower density markets such as smaller cities and rural areas. This conclusion is among the findings of the latest quarterly National Association of Home Builders Home Building Geography Index (HBGI).

An unavoidable lesson of the public health crisis associated with COVID-19 is that major metropolitan areas faced greater challenges. High density lifestyles, championed by some planners over the last decade as a rival to suburban living, proved to be vulnerable to a virus due to crowded living conditions, dependency on mass transit, and insufficient health and public sector infrastructure. Moreover, the spread of COVID-19 that began towards latter half of the first quarter of 2020 resulted in the closure of most non-essential businesses, weakening economic activity and housing demand.

The HBGI found that even before the pandemic hit, home construction activity was increasing at a higher rate in inner and outer suburbs than in high-density markets. While the data show that single-family construction expanded across all seven HBGI-tracked economic geographies, the strongest growth rate (9.1 percent) was found in outlying suburbs (exurbs) of small metro areas, as measured on a one-year moving average.

Given expected impacts of the virus on housing preferences, we expect these trends to continue. In general, the hardest hit areas in terms of reported positive cases and deaths were those where population-density was the highest, i.e., major metropolitan areas. This will lead to more construction in low- and medium-density markets in the quarters ahead, as households seek out single-family homes further from urban cores, particularly as telecommuting continues in elevated numbers.

In the first quarter HBGI data, core counties, suburban counties, and exurbs of large metro areas posted the lowest growth rates of 7.2%, 4.9%, and 5.4%, respectively, for single-family construction over the last four quarters. In contrast, small metro areas, small towns, and rural areas individually possessed growth rates of no less than 8.0%.

As the above figure also shows, the combined shares of lower density markets, which includes core metro areas of small cities, has gradually increased since 2016 to about 47% of all single-family builds. These less dense markets make up about 44% of the U.S. population.

The data also show that small town (micro county) single-family home building prospects were very strong in 2017 but slowed during the interest-rate induced housing affordability soft patch of 2018/2019.

In future posts, we will examine the HBGI’s new economic geographic analysis of building trends based on the relative size of the education and health services (EHS) sector. The current public health crisis makes this an important perspective.



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4 replies

  1. Urban- rural is the new description for City Close – Country Comfort!
    ONwards and UPwards with new business opportunities!

  2. As is often the case with oversimplified headlines, the headlines and the actual story are VERY different. The headline says low-density sprawl is triumphant.

    The story (paragraph 5): “In the first quarter HBGI data, core counties, suburban counties, and exurbs of large metro areas posted the lowest growth rates of 7.2%, 4.9%, and 5.4%, respectively, for single-family construction over the last four quarters. In contrast, small metro areas, small towns, and rural areas individually possessed growth rates of no less than 8.0%.”

    In other words, the core counties of large metro areas have a higher growth rate (7.2 percent) than either the suburban OR the exurban counties of those large metro areas.

    So the real story is, so to speak, a kind of polarization: small metros are growing more, but the people who ARE building in major metros are choosing the core counties. The in-between densities (suburbs of large metros) are getting left behind; perhaps some people think that living in a suburb of a large metro gives them the worst of both worlds.

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