In the third quarter of 2021 apartments and other multifamily residential construction showed a continuation of the suburban shift that was characteristic of prior quarters, per the most recent data from NAHB’s Home Building Geography Index. For the current period, market share declined in high-density markets, namely large metro core and suburban counties.
Between the third quarter of 2020 and 2021, the share of new multifamily permits fell from 40.5% to 37.9% in large metro core markets. Meanwhile, the permit share in small metro area counties increased from 24.9% to 27.2%. Though these percentage changes seem relatively small, they are statistically significant changes. Historically, year-to-year changes in multifamily market share are usually slow to develop and rarely move more than one percentage point higher or lower. This makes these latest year-over-year numbers noteworthy. The market shares are shown in the chart below, and include small towns and rural areas, which make up less than 10 percent of all activity. However, as with the other lower density submarkets, their market shares have been rising since 2016.
Another key metric of the HBGI are the multifamily permit growth rates of apartment and condo construction between the third quarters of the current and prior year across all regional geographies. Across market types, growth rates were greater than a one year ago, with the largest increase in growth found in suburbs of small cities. Growth was strongest in this submarket, at 56%, and weakest in large metro core areas at 7%. It is noteworthy that large metro core and suburban areas started showing growth this year after declines last reported last year. This speaks to the general trend of large metro areas staging a comeback in terms of home building activity but to a lesser degree for the multifamily sector.
The above figure shows the multifamily permit growth rates of apartment and condo construction between the third quarters of the current and prior year across all regional geographies.
Households opting to move into the higher density neighborhoods as the economy recovered from the pandemic was more evident in single-family home building than in its multifamily counterpart. Rising material costs owing to COVID-19-caused supply chain issues have propelled apartment and condo builders to move to lower-cost markets, which are often lower-density markets.