4Q20 Home Building Geography Index: Diversity Measures

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The topic of diversity, and its relationship to homeownership and home building, carries significant implications for policy making, social justice, and equity. In addition to the usual regional classification, NAHB’s Q4 2020 Home Building Geography Index (HBGI) provides a segmentation of the housing market based on county-level measurements of racial and ethnic heterogeneity. For this purpose, we use ESRI’s1 2018 Diversity Index, defined as the probability (out of 100) that two persons, chosen at random from the same area, belong to different race or ethnic groups.

The nationwide distribution of the diversity index values of 3,142 counties was divided into two groups: counties that measured 45 or below on the diversity index were classified as lower diversity counties, while those that measured 46 or above were classified as higher diversity counties. As of 2018, the diversity index at the national level was 64.

The figure below shows the HBGI’s higher-diversity counties and their single-family building conditions for the 4th quarter.

Higher diversity counties are concentrated in areas close to the borders of the U.S., except for the Canadian border. Intuitively, this makes sense as many of these border areas have major ports of entry for newly arrived Americans. In addition, many metro areas scored higher on diversity metric.

The figure above shows the growth rates for single- and multifamily homebuilding in higher and lower diversity housing submarkets. Single-family home building performed similarly in higher and lower diversity counties, finishing 2020 with growth rates of 14.5% and 15.3%, respectively. On the other hand, there was greater differentiation between higher and lower diversity counties for multifamily construction.

The underlying reason is clear: 2020 was a year in which the economy faced an unprecedented disruption due to COVID-19. Areas with greater population density, located near various ports of entry into the U.S., experienced greater virus infection and proliferation. As a result, demand for new multifamily construction declined in these areas more than elsewhere. The HBGI data are consistent with this observation: multifamily construction in lower diversity counties finished the year with a growth rate of 8.7% but the growth rate fell in higher diversity counties through the end of 2020, finishing with a relatively flat rate of just 0.3%

The market shares of higher and lower diversity counties for single- and multifamily home building, show that multifamily residential construction has three times greater a presence in higher diversity counties than lower diversity counties, and that its single-family counterpart has about twice as great a presence2. Thus, the HBGI data show that higher diversity counties have represented higher growth areas for both forms of residential construction.

A tabulation between the regional classification and the diversity index, as shown above, reveals that lower diversity counties occur in greater proportion in submarkets delineated by lower population density, particularly outlying counties of both small and large metro areas (exurbs).

A similar tabulation between Second Home Counties, the HBGI’s special classification for the previous quarter, and the Diversity Index shows, perhaps unsurprisingly, that the number of Second Home Counties is greater in Lower Diversity Counties than Higher Diversity Counties, by a factor of 2.5.


Notes:

  1. ESRI, which is short for Environmental Systems Research Institute, the name that was used for the company when it was first founded, is an international supplier of geographic information system software (GIS), web GIS and geodatabase management applications.
  2. These ratios of single- and multifamily residential construction between higher and lower diversity counties are valid as of Q4 2020 and a few quarters prior. In earlier quarters, e.g., at the beginning of 2016, the gaps of the market shares between the two submarkets were greater.


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