It's been tough for homebuyers lately. Demand across the country has greatly surpassed supply. When that happens, builders notice and respond. The Home Building Geography Index (HGBI) recently released findings on where homebuilders are currently focused, and it's not high-density metro areas. As of the second quarter of 2021, the HBGI found the focus regarding residential construction is in the suburbs and other lower-cost markets.
- Single-family homebuilding is up everywhere.
- Multifamily is shifting from metro areas to suburbs and exurbs.
- Both the most- and least-affordable counties lost market share of single-family homes to the middle-tier areas.
Housing affordability is the new classification
The HGBI classification of counties has traditionally been regional, but new for this latest report is further segmenting the housing market based on housing affordability: how much income goes to housing based on where people live. Based on that data, the HGBI breaks areas into affordability regions.
The most expensive areas are the East and West coasts. The least expensive areas are mostly in the West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota) and West South Central (Arkansas, Louisiana, Oklahoma, Texas) regions. Everything else would be the middle tier.
Key findings from the affordability numbers
Most people currently live in the most expensive counties in the country, what the HGBI calls "least-affordable" counties: Almost half the population, or 161 million people, currently live in the most expensive areas.
Only 9 million people, or less than 3% of the population, live in the cheapest, or what the HGBI calls "most affordable" counties.
That's about to change based on the latest results. The most expensive and the middle-tier areas will see the most single-family construction (that's the most expensive type of housing to build): Almost 48% of single-family homes will be built in the more expensive locales. But the cheaper parts of the county will see very little single-family homes being built: Less than 1%.
The growth rate for the expensive areas for the second quarter of 2021 was only 11% compared with growth for the affordable areas during the same time period, which was almost 44%.
Housing for people in cheaper areas
It's more lucrative to build million-dollar-plus homes for people in expensive places, but that doesn't help meet the demand for housing for the vast majority of folks who want to own a home. The trend for affordable housing, based on the HGBI survey, is multifamily.
Although most multifamily was in expensive areas, at 68%, (remember that's where half the population lives), the growth rate for the second quarter of 2021 was 8.2%. Compare that with the growth rate in the affordable counties during the same period of 18.3%, and you can see the trend emerging.
If you look at what happened between the second quarter of 2020 compared with the second quarter of 2021, you'll see a drastic change: During that time, there was a 27% growth in multifamily in expensive counties, but there was an almost 89% growth in multifamily being built in affordable areas (suburbs and exurbs).
Reasons for the shift
The pandemic was responsible for much of this shift in housing trends. According to Chuck Fowke of the National Association of Home Builders (NAHB), "Lower land and labor costs, and regulatory burdens in suburban and exurban markets make it more appealing to build in these communities. And workers are increasingly flocking to these areas due to expanded teleworking practices and lower housing costs."
The Millionacres bottom line
The trend for single-family building is in the middle-tier regions of the country where it's more affordable and easier to add housing than in the expensive coastal areas. The trend for multifamily is in the more affordable areas. But there also needs to be strong job growth for building to occur, and those areas tend to be more expensive. So there will be a "tug-of-war" between where the jobs are and where it's affordable to build.