Housing affordability has been a key driver of the suburban shift of home building activity over the last year and a half. As the following analysis from the NAHB Home Building Geography Index reveals, lower density markets in general have higher housing affordability conditions, which explains the shift in construction activity.
The second quarter HBGI examined county-level Price-to-Income ratios. The analysis found that the growth of single-family home building in the middle affordability tiers outpaced those of the least affordable and most affordable tiers over recent quarters. This is likely due to higher cost areas reflecting higher levels of economic opportunity (raising housing demand) but also lower affordability (reducing housing demand), leading to middle affordability areas growing the fastest due to this push and pull.
To examine this geographic distribution in more detail, the following graphic shows the five HBGI Price-to-Income affordability quintiles allocated among the regional submarkets used in the index.
The Regional submarkets are ordered above to highlight increasing proportions of the ‘most affordable’ tier and decreasing proportions of the ‘least affordable’ tier, as based on Price-to-Income ratios. For example, the set of large metro core areas contains the largest proportion of “least affordable” counties.
Interestingly, the regional classifier of small towns (“micro counties”) has a larger proportion of counties that classified into the ‘least affordable’ tier (40%) than large metro suburban counties (19%). This is an important reminder that housing affordability challenges are not exclusively located in large metro areas.
Lastly, the chart shows that the set of suburbs of small cities (“small metro outlying” counties) has the greatest proportion of counties classified into the ‘most affordable’ tier. This is a primary reason for why such outlying counties of lower density markets have been among the fastest growing markets in recent quarters.