Residential construction has remained in low density suburbs and outlying areas, according to the National Association of Home Builders’ latest release of the Home Building Geography Index (HBGI). This trend is driven by persistent factors that continue to affect housing affordability including a limited supply of buildable lots, rising construction costs, and a shortage of skilled labor. By focusing on low-density areas, developers aim to lower some of the high costs associated with building in high density areas.

Single-family

All HBGI-tracked geographies continued to post growth in the third quarter as single-family starts are poised to be higher than last year. The HBGI is constructed using permit data, which has continued to post higher volumes than last year despite residential construction dealing with persistent structural issues.

Among the HBGI geographies, the highest growth in the third quarter of 2024 was registered in small metro core counties, which increased 16.3% on a year-over-year four quarter moving average basis. The market with the lowest level of growth was micro counties which were up 6.5% on a year-over-year four quarter moving average.

In addition to the main HBGI geographies, new analysis shows that counties with the highest population density have lost market share with respect to single-family construction. For this analysis, we define high-density areas to be counties in the top 10% with respect to population density. Approximately half of the total U.S. population lives in such counties.

These high-density counties previously constituted just under 40% of single-family construction in the first quarter of 2018 on a four-quarter moving average basis but since then the market share for these areas has fallen to 36% . This trend predates the COVID pandemic, as the market share for high-density counties had fallen from 39.7% in the first quarter of 2018 to 37.7% in first quarter of 2020, a 2-percentage point decline. During the pandemic, this market share fell to 35.4%, another 2.3 percentage point decline. Since the first quarter of 2022, single-family construction in high-density areas has remained at a constant market share, varying only a few percentage points.

Multifamily

In the multifamily sector, the HBGI year-over-year growth posted declines in the third quarter for all but one geography. The measure for small metro outlying counties was up 2.3% on a year-over-year four quarter moving average basis in the third quarter, as more than 9,000 permits were authorized in the third quarter, the highest reading for this geography type in the available data. Due to over 800,000 multifamily units currently under construction and higher interest rates, multifamily construction remains subdued from last year. Large metro suburban counties saw the largest decline in the third quarter of 19.3% year-over-year four quarter moving average basis.

High-density areas continue to make up a majority of the multifamily market. However, the market share has fallen from 67.4% in the first quarter of 2018 and to now 63.2%. This share fell significantly during the pandemic, dropping 3.8 percentage points over a two-year period. This is a notable shift for apartment construction to lower density areas.

The third quarter of 2024 HBGI data along with an interactive HBGI map can be found at http://nahb.org/hbgi.