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NAHB geography index points to affordability crisis

The pace of housing in areas with most millennials lags behind the rest of the nation.

BY HBSDealer Staff

The majority of single-family and multifamily housing production in the nation is occurring in counties with the greatest concentration of millennials, the National Association of Home Builders (NAHB) reported.

But the NABH is describing the finding as a “warning sign” that the housing affordability crisis persists and more construction is needed. At the same time, the pace of housing production in areas with the greatest concentration of millennials lags behind the rest of the nation, according to the latest quarterly NAHB Home Building Geography Index (HBGI).

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 regions.

The third quarterly release of the HBGI also sheds new light on the housing market by focusing on where millennials live.

“Millennial counties” are defined as geographic areas where at least 26% of the population consists of this growing demographic group. The NAHB said these millennial counties are diverse, representing major metro areas including several California markets, Seattle, Portland, Boston and Washington, D.C., as well as more rural counties in places such as Ohio, Kansas and Missouri.

The HBGI found that counties with elevated millennial shares account for 62% of the entire U.S. population. These counties also account for 59% of single-family home building nationwide.

“On the surface, these numbers look similar, but you would expect the single-family construction share to be higher in millennial intensive areas, which tend to feature greater amounts of household formation and population growth that require additional housing,” said NAHB Chief Economist Robert Dietz.

“The HBGI highlights the ongoing challenge of housing supply, particularly for younger households seeking affordable rental housing or attempting to gain a toe-hold on the homeownership ladder,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn. “While counties that have greater concentrations of millennials are where most of the single-family and multifamily construction in the U.S. is occurring, those same areas have recently seen relatively weaker growth rates for home construction.”

“The new NAHB HBGI data shows two consecutive quarters of declines for single-family construction in counties with larger numbers of millennials, the very areas that most need additional home construction,” said Dietz. “These localities are more acutely affected by supply-side constraints due to the greater demand for inventory resulting from the relatively younger population that resides there.”

But multifamily construction in millennial counties – which accounts for 80% of all apartment activity nationwide – picked up in the third quarter, though the improved growth rate was slower than the nationwide pace.

“The outsized concentration of multifamily construction in areas with a large proportion of millennials is not a surprise, but it is also a reminder of the mismatch between housing wants and housing availability that is challenging the for-sale market,” Dietz noted.

Other findings in the third quarter HBGI:

  • Growth in single-family construction was insufficient to keep pace with demand in the third quarter of 2019, continuing along a weaker trend due to the housing downturn from last year.
  • Apartment construction is leveling off nationally but spreading out geographically, as multifamily building showed some gains in less densely populated areas, such as small towns and rural counties.
  • Apartment construction in large metro core and large metro suburban areas rebounded in the third quarter, reflecting the highest growth rates in these regions in two years.
  • Weakness in manufacturing areas continues to limit home construction. Manufacturing counties’ share of multifamily home construction decreased by 0.5 percentage points to 6.3 percent, while single-family construction declined at a faster rate in such areas compared to non-manufacturing areas.
  • A slow shift of single-family construction from close-in suburbs to exurban locations continues due to land and lot availability and cost. This market environment, made worse by inefficient zoning practices and regulatory burdens, will continue to create a mismatch between where housing demand is growing and where housing supply can be affordably realized.
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