COVID effects drove homebuilders outside the city

As the COVID-19 pandemic spurred a wave of moves to lower-density areas, new residential construction followed suit, according to the National Association of Home Builders.

Since late 2019, the construction of new single-family residences has noticeably shifted away from large urban cores and their suburbs toward outer counties and rural areas, according to the association's Home Building Geography Index. The share of single-family constructions in large metro communities declined to 41.6% in the second quarter this year, from 44.5% in the final three months of 2019, the last full quarter prior to COVID-19 onset.

Over that time, builders and buyers focused more on outer counties and rural communities, with the share of new single-family construction increasing to 19% from 17.4% in the outer counties of both large and small cities. Rural areas saw residential construction grow by a full percentage point to 10.4% from 9.4%. At the same time, the share of new homes in smaller urban markets, including suburbs, also saw a smaller increase to 29% from 28.8%.

"Housing demand has shifted from these higher-density core areas to low-density markets, where homes are larger and more affordable," wrote Na Zhao, senior economist at NAHB. "At the beginning of the pandemic, homebuyers desired more personal space for the work-from-home and remote-learning models."

With COVID migration pushing home costs to new records nationwide, buyers and builders pushed further into lower-priced regions. "Declines in housing affordability in high-cost and highly regulated markets also drove home buyers to low-density outer markets," Zhao said. 

But recent reports of a cooldown have left few housing markets unaffected, regardless of their size. Home-price growth has slowed across the country. Homebuilders are not immune to the change in market conditions. Homebuilder sentiment recently fell to its lowest point in years, with approximately 20% of companies saying they had reduced asking prices.  

A similar move away from large urban cores occurred in multifamily construction. In the second quarter of 2022 in core and inner suburban counties the share of multifamily home building decreased to 65.7% from 68.8% in late 2019.

The large urban core's loss of share was redistributed toward smaller metropolitan communities, which saw an increase to 22.9% from 20.8%, and outer counties, where multifamily construction grew to 7.9% from 6.8%. Rural multifamily construction remained flat over the period, edging down to 3.5% from a 3.6% share.