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Opinion: Was the Shift of Housing Demand to the Suburbs Real?

suburban construction shift

According to standard economic theory, homebuyers can obtain more bang for their buck by “driving further to qualify” – trading a longer commute for lower housing and land costs.

Many speculated the Covid-19 pandemic increased this effect by enabling more telecommuting. For many workers, work-from-home transformed the perception of the daily commute cost to a more weekly-based measure in which traveling to work did not occur every day.

In turn, this enabled buyers and renters a greater area from which to select housing and somewhat decentralized housing demand to outer suburbs and away from urban cores.

However, this claim is disputed by some analysts who argue that home prices are rising everywhere. But data from the home construction sector are nonetheless consistent with a geographic shift in demand; that is, a suburban shift for housing preferences to lower-density markets, where new construction plays a relatively larger role in meeting the needs of both for-sale and for-rent housing supply.

Construction data tracked in the NAHB Home Building Geography Index (HBGI) prove that lower density markets indeed saw greater growth in 2020. The HBGI tracks building activity by economic geographies, or collection of similar economic areas.

For 2020 data, outlying counties of smaller metro areas experienced a 20.7% growth rate. Somewhat more dense small metro core areas posted a smaller 15.7% annual growth rate.

Increasing in population density, large metro suburbs registered a smaller still 15.1% yearly gain, and lastly, large metro core areas (high-density close-in residential areas) posted the slowest gain, with just a 9.1% growth rate. Thus, the suburban shift for single-family home building was real and clear in the construction data.

This changing geography of housing demand provided a boost for home building, one that continues now. It is also the natural, if accelerated, consequence of declining housing affordability during the post-Great Recession period, as people find new ways to offset rising residential costs.

Fortunately, additional flexibility for work commuting is empowering renters and homebuyers by providing additional housing options, an impact that will yield an efficiency gain for the overall economy.

This effect is waning somewhat during the second half of 2021 as the economy normalizes. Indeed, the second quarter of 2021 saw the best quarter for townhouse construction in 14 years, a sign of rebounding demand in more medium-density environments.

But the NAHB forecast finds that some of this suburban shift will persist as hybrid work schedules show signs of remaining part of work culture in many sectors.

Robert Dietz is the chief economist for the National Association of Home Builders. Prior to joining NAHB in 2005, he worked as an economist for the Congressional Joint Committee on Taxation. He earned a Ph.D. in Economics at the Ohio State University.

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