The Q2 2020 results of NAHB’s Home Building Geography Index (HBGI) show geographical trends of the home building industry as the novel coronavirus, COVID-19, spread quickly through the United States. Although the pandemic caused widespread economic impacts for many businesses, housing has weathered the economic storm, rebounding quickly from an April slump.
Moreover, data from the second quarter NAHB HBGI indicates a suburban shift for residential construction. As detailed below, the only region posting a quarterly gain for single-family construction during the second quarter was small metro suburbs.
Over 55% of the U.S. population resides in “large metro areas” and these large metro areas make up only 8.2% of all land in HBGI’s surveyed areas (all of United States excluding U.S. territories). Given large metro areas’ higher susceptibility to the challenges created by the public health crisis of COVID-19 (e.g., social and physical distancing), prospective single-family homebuyers sought less densely populated areas, i.e., suburbs, for housing. As a result of this shift and existing lean inventories, the county-level second quarter HBGI data show relative growth in lower density markets that represent half of all single-family construction on a four-quarter moving-average year-over-year basis.
Small metro suburbs accounted for the fastest growing geographic areas for single-family construction during the second quarter, up 10.6 percent on a four-quarter moving average basis. In the HBGI, we identify small metro suburbs as “outlying counties” of small metro areas (areas with less than one million in population).This was followed by small towns (9.3 percent), small metro core areas (7.5 percent) and exurbs (5.6 percent). Small metro suburbs include counties such as Green County, Ohio, a suburb of Dayton, Ohio. As a class, small metro suburbs experienced a staggering increase of 2.3% for single-family home building during the second quarter relative to a year prior. This was the only geographic region that experienced a year-over-year increase, with other regional declines correlated with population density. For example, the largest decline was experience by large metro core areas which declined almost 18% compared to the second quarter of 2019.
For the second quarter, we also found that the market share for single-family construction in low density areas (small metro core and suburbs, small towns and rural markets) increased from 47.5 percent a year ago to 48.4 percent. While this “year-over-year” gain appears small, the changes in market share are usually slow to develop, thus making a one-percentage point year-over-year gain noteworthy, when compared to recent historical data.
As shown above, the relative change in Q2 2020 of lower-density areas’ collective market share from the previous year (as expressed in standard deviation terms) has been the greatest of all quarters surveyed in the HBGI and clearly accelerated as a result of the public health crisis and recession of 2020.
Low density areas take up just under 92% of all land mass in the United States (excluding territories) and are home to under 45% of the U.S. population. The HBGI formally identifies towns and rural areas, as micro counties and non metro/micro counties, respectively.
Why is single-family construction growing faster in these low density markets? Existing housing affordability constraints, combined with a growing share of the labor force working at home part- or full-time, has increased the need and ability of households to seek out more affordable housing further out from large metro cores. This combined with density concerns related to the virus itself has increased construction demand in these lower density markets. To summarize, the high-level findings of the 2nd quarter HBGI are:
- The increasing demand for construction in more suburban neighborhoods is being driven in large part by the coronavirus outbreak
- Small metro suburbs accounted for the fastest growing geographical areas for single-family construction during the second quarter, up 10.6 percent on a four-quarter moving average basis.
- In the second quarter, single-family housing starts fell by 24 percent on quarterly basis. Of the seven regional geographies, only small metro area suburbs posted a year-over-year gain in this quarter, while the others registered declines, the biggest of which occurred in large metro core areas.
- The market share for single-family construction in low density areas (small metro core and suburbs, small towns and rural markets) increased from 47.5 percent a year ago to 48.4 percent.
- The fastest growing geographies for apartment construction in the second quarter were found in the exurbs, small metro suburbs and rural areas.
- The market share for multifamily construction in low density areas (exurban areas of large metro markets, small metro core and suburbs, small towns and rural markets) increased from 32.9 percent a year ago to 34 percent.
The multifamily conclusion will be detailed in a future post. The HBGI data can be found at nahb.org/hbgi.