Multifamily Demand Shifts to Higher Density Markets

Per NAHB’s latest Home Building Geography Index (HBGI), through the second half of 2021, multifamily home building rebounded from quarterly declines that began at the outset of the pandemic. In the wake of the public health crisis, there was a pronounced return to higher density markets or geographies, particularly in apartment and other multifamily residential construction.

Comparing the regional geographies’ multifamily growth rates in the fourth quarter of 2020 with that of 2021 shows a clear improvement in pace. In the fourth quarter of 2020, the highest multifamily declines in growth rates were in large metro suburban areas, small metro suburbs, and non-metro/ non-micro counties (rural areas), at -7.8%, -7.0%, and -10.7%, respectively. In contrast, by the fourth quarter of 2021, multifamily home building in non-metro / non-micro counties had the highest growth rate of 91.2%, while large metro core and suburban counties had the lowest growth rates of 21.8% each. Nonetheless this marked a substantial improvement. Still, growth rates were approximately negatively correlated with submarkets of increasing density.

The data show mixed results for when each regional geography reached its lowest growth rate since the first quarter of 2020. All the lower density geographies (small metro counties, micro counties, and rural areas) reached their lowest growth rates at the end of 2020, while large metro core, suburban and outlying counties reached their troughs in the fourth quarter of 2020, first quarter of 2021, and second quarter of 2021, respectively.

Meanwhile, small metro areas, which can be divided into core counties and outlying counties, posted a market share gain of 0.6 percentage points relative to the second quarter and a substantial 2.2 percentage point gain relative to the fourth quarter of 2020.

Major metro suburbs posted a market share gain of 0.3 percentage points relative to the second quarter but retained a 0.2 percentage loss relative to the fourth quarter of 2020 due to prior periods of weakness. Overall, 66.5% of multifamily development occurred within large metropolitan statistical areas (MSAs), 27.4% in small MSAs, and 6.1% rural areas and small towns. Small MSAs are those with less than one million total population.

Lower density areas’ higher double-digit growth rates pushed large metro counties’ collective market share down 3.6 percentage points through 2021 to 66.5%.

A forthcoming analysis in this series will cover regional developments in single-family home building for the fourth quarter of 2020.