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Builders Expect Higher Demand in Exurbs

“Home sellers near city limits may see higher buyer demand. Builders predict a work-from-home trend will increase new-home sales in areas where land is still affordable.

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

NAHB says multifamily development is also “proceeding at a brisk pace in areas where education and health services dominate” in its latest quarterly report.

“We expect the virus could affect future housing preferences for those currently living in the hardest-hit, high-density environments like central cities and that housing demand will continue to increase in medium- and low-density communities,” says NAHB Chairman Dean Mon.

“The first quarter HBGI data reveals that construction growth expanded over the last year more quickly in low-population-density areas than high-density regions,” says NAHB Chief Economist Robert Dietz. “This trend will continue as households seek out single-family homes further from urban cores, particularly as telecommuting continues in greater numbers.”

While commercial builders often seek out sites close to downtowns, the cost of land is often prohibitive near city cores for single-family home builders. An increase in demand in outlying suburban areas – also called exurbs – would coincide with an ability to secure land at reasonable prices.

“An unavoidable lesson of the public health crisis associated with COVID-19 is that major metropolitan areas faced greater challenges,” NAHB said in a release about its latest study. “High-density lifestyles, championed by some urban 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.”

However, the work-from-home trend isn’t the only reason for an uptick in demand for exurb homes, notably in high-density markets. Before the pandemic hit, the rising cost of existing homes pushed some homebuyers farther out from the city even if it increased the time and cost of commuting.

The HBGI is a quarterly measurement of building conditions across the country. NAHB uses county-level information about single- and multifamily permits to gauge housing construction growth in various urban and rural regions. It also found that:

  • Single-family construction expanded across all seven economic geographies, posting the strongest growth (9.1%) in outlying suburbs (exurbs) of small metro areas, as measured on a one-year moving average.
  • Over the past year, apartment construction growth in less dense markets has outpaced expansion in larger metropolitan areas.
  • All economic geographies reported net growth over the past year for single-family and multifamily construction, a reminder of the momentum home building possessed before the current recession.”

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