Multifamily construction shifted into less dense markets during the third quarter of 2020, per the latest NAHB Homebuilding Geography Index (HBGI). This change is similar to the evolving geography for single-family home building, as housing demand moved to lower cost, more affordable markets. The multifamily data confirm that these shifts in demand are not just occurring for single-family home building but for all forms of residential real estate in response to the increase in telecommuting and other virus crisis impacts.
Historically, multifamily building market shares have been the highest for large metro area core (40%) and suburban counties (26%) and small metro area core counties (22%). Communities build up when land becomes too valuable to build out, and this occurs in the central business districts and close-in suburbs of large metro areas.
The figure above shows all three regional submarkets posting gains for multifamily construction from the middle of 2019 until the start of 2020. However, these gains ended for large metro areas as the COVID-19 crisis took hold. As of the third quarter of 2020, core counties of large metro areas posted a multifamily residential construction decline of 4.2% (on a moving, four-quarter average basis) while suburbs of large metro areas experienced a greater decline of 4.9%.
In contrast, during the third quarter multifamily construction expanded in more affordable markets, continuing a trend that started in the second quarter. The market share for apartment construction in small metro core areas increased from 21.4% in the second quarter to 22.4% in the third quarter, a significant gain considering how slowly regional submarkets’ compositions change. In fact, the largest gains in multifamily development during the third quarter were experienced in small towns (“micro counties”) and rural areas (“non metro micro counties”) at 19% and 23%, respectively.
NAHB’s forecast is for multifamily construction to decline in 2021 as weakness continues in the most dense market areas. However, there will be localized gains in areas of lower density and lower construction cost before the market stabilizes in 2022.