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Urbanization of the overall economy reflects on new housing starts

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As housing starts gradually rise, the proportion of homes getting built outside of metropolitan areas is declining due to fewer jobs there to support them.

Cities contain a higher concentration of jobs, especially compared to 50 or 100 years ago. Agrarian and farming work decreased over time and urban centers present increasing benefits. In addition to a fuller complement of jobs, cities offer access to transportation and infrastructure. Even something as seemingly ubiquitous as internet access isn’t a guarantee in rural areas.

“Cities have a tendency to grow because the more people that move there, the more benefits exist. There’s a positive externality,” Redfin Chief Economist Daryl Fairweather said in an interview. “More jobs are reliant on technology and the accompanying infrastructure and there are fewer and fewer agricultural jobs. It’s hard to imagine having access to a lot of the high-paying jobs if you don’t have internet access.”

Since the historic downturn in housing production following the crisis, nonmetropolitan homebuilding experienced more of a struggle gaining traction after the market’s low point in 2011. That year, nonmetropolitan housing starts made up a 13.1% share of all single-family starts. However, that proportion steadily fell to 9.3% by 2017.

Nonmetropolitan housing starts grew 40% in the six years from 2011 to 2017. However, overall housing starts rose 97% over that same time frame. Nonmetropolitan starts accounted for about 79,000 of 2017’s 848,900 overall housing starts, according to the National Association of Home Builders.

Like the consumers following the money of jobs, the builders follow the migration trends of consumers. Starts are based on where the highest need presents itself.

This trend is expected to carry on as housing starts keep gaining steam. The most recent data from the Census Bureau shows a continuation of this upward climb.

“The data on new housing starts has been particularly volatile over the past few months, driven by large swings in multifamily starts. Focusing on the single-family data, the 4.5% year-over-year gain is a promising sign for the housing market. Given the underlying strength in overall housing demand, slow and steady growth in new supply will support a modest increase in sales,” MBA Chief Economist Mike Fratantoni said in a press release.

The largest increases in migration patterns, and in turn, housing starts, could happen to secondary cities and ones further inland. At certain points, places reach maximum capacity. A city like New York only has so much land and buildings can only get built so high. It possesses limited opportunities for growth.

“It’s the midsize cities that experience the largest amount of growth and can actually increase migration from rural parts. Cities like Omaha, Neb., become more and more attractive and there are more rural areas close to Omaha than there are to, say, Los Angeles,” said Fairweather. “That becomes a magnet for people living in these rural areas. I think that’s the general explanation for why we’re seeing more residential investment in cities than we are in rural areas.”

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