While single-family home building has slowed significantly from pandemic-fueled highs because of higher interest rates and construction costs, the slowdown is less pronounced in lower density markets. Meanwhile, multifamily market growth remained strong throughout much of the nation, according to the latest findings from the National Association of Home Builders (NAHB) Home Building Geography Index (HBGI) for the first quarter of 2023.
“This latest data indicates that the pace of single-family construction in the first quarter of 2023 has slowed from pandemic-induced highs, but a turning point is coming into view with a rebound led particularly in more affordable, lower density areas,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “And while many builders are having difficulties with labor shortages and tighter finance conditions, the multifamily building market remains strong with risks of slowing later this year.”
“Higher interest rates and construction costs, along with shortages of key materials such as transformers and concrete, have contributed to all single-family markets posting a negative year-over-year building growth rate, but this particularly true for the largest, densest metro areas,” said NAHB Chief Economist Robert Dietz.
The HBGI is a quarterly measurement of building conditions across the country and uses county-level information about single- and multifamily permits to gauge housing construction growth in various urban and rural geographies.
The lowest single-family year over year growth rates in the first quarter of 2023 occurred in large metro core counties, which posted a 25.6 percent decline. All large and small metro areas also had double-digit negative growth rates, while rural markets (defined as micro counties and non-metro counties) recorded negative growth rates in the single digits.
Over the past four years rural markets have exhibited particular strength. The rural single-family home building market share has increased from 9.4 percent at the end of 2019 to 12 percent by the first quarter of 2023.
The first quarter HBGI shows the following market shares in single-family home building:
- 15.7 percent in large metro core counties
- 24.5 percent in large metro suburban counties
- 9.5 percent in large metro outlying counties
- 28.6 percent in small metro core counties
- 9.7 percent in small metro outlying areas
- 7.5 percent in micro counties
- 4.5 percent in non-metro/micro counties
In the multifamily sector, large metro outlying counties had the highest year-over-year growth rate in the first quarter of 2023, up 24.5 percent. Meanwhile, large metro core counties had the lowest growth rate at 3.2 percent. But in a sign that multifamily building is returning to densely populated areas, the market share for this sector increased by 0.8 percentage points to 37.5 percent between the fourth quarter of 2022 and first quarter of 2023.