Multifamily construction picks up in smaller cities

In the second quarter, multifamily construction increased substantially in smaller affordable cities and suburbs, reflective of demographic shifts in the wake of the coronavirus, according to the latest data from the National Association of Home Builders.

The pace of multifamily residential construction grew by 14.3% on a year-over-year basis in small metropolitan urban core areas and by 25.5% in small metro suburban areas, Home Building Geography Index released by NAHB revealed. The index also showed a 20.5% uptick in multifamily construction in small towns or “micro counties.” In the largest cities, the rate of building slowed.

“Large metro core areas recorded a 0.5% year-over-year decline, reflecting the ongoing virus crisis’s baneful effects on housing in core counties of major metropolitan areas that started over a year ago,” said Litic Murali, NAHB economist, in the association's Eye on Housing blog.

Steadily rising home prices and the increase in work-from-home arrangements have served to boost interest in areas with less population density. The core counties of large metro areas saw their multifamily residential construction activity share fall to 38.7% from 40.2% in the first quarter.

But even with the growing number of multifamily units now being built in smaller communities, large metropolitan regions still account for 64.7% of all such constructions. Multifamily residences in the core of smaller cities and outlying counties as well as in small towns equaled 31.4%. According to NAHB, the rate of growth in the multifamily sector was moderately higher in counties with more affordable housing.

Single-family residential construction increased across all regional types, indicative of the hot housing market and a report by the U.S. Census Bureau showing spending on private residential construction growing 26.5% year over year in July. Spending, though, was also elevated due to the continued high price of lumber, which has plagued homebuilders all year.

Outlying counties of large metro areas showed the greatest growth in single-family starts, climbing 36.3% year over year. Counties outside small metropolitan areas jumped 31.7% as well, with small metro core areas increasing by 28%. Large suburban counties experienced 31.2% growth and the rate of single-family construction climbed by 26.2% in core urban areas. Micro counties and those not categorized saw increases of 26.8% and 31.9%.

But Murali noted that the expansion of single-family construction was “partly inflated due to the dip that occurred in the prior year with the onset of the COVID-19 pandemic.”