Top 5 Cities for New Construction

Top 5 Cities for New Construction

As the national housing market gets hotter and hotter, more and more real estate investors are turning to a sector historically left largely to national developers: new construction. Whether they are participating in syndications to raise money for new build-to-rent neighborhood developments, partnering up with public entities to qualify for funding to build new multifamily complexes and mixed-use developments, or simply buying one-offs (or more than one, for that matter) in a new neighborhood expected to soon be a prime location, real estate investors are more involved in new construction than ever before.

However, like any sector, there are areas of the country that are “hotter” than others for new construction, and investors should know in advance which markets are primed for 2022.

According to the National Association of Home Builders (NAHB), homebuilding accelerated “sharply” during the COVID-19 global pandemic in 2020. This trend continued into 2021, with builders applying for a reported 134 percent more single-family permits in 2020 than in 2011 and 139 percent more multifamily permits than in 2011.

The NAHB used data from the U.S. Census Bureau to identify states and markets with the highest activity of new-construction permit applications. “At the state level, Texas takes the top spot,” wrote Eye On Housing reporter Danushka Nanayakkara-Skillington. Eye On Housing is the NAHB’s economics and housing policy newsletter. “Three out of the five largest single-family markets are located in the Lone Star State,” she added.

Below, you can see the top five cities/metropolitan statistical areas (MSAs) for new construction permits in 2020. Much of this data appears likely to continue on trend in 2021.

  1. Houston-The Woodlands-Sugar Land, Texas
    (363,067 permits)
  2. Dallas-Fort Worth-Arlington, Texas
    (292,219 permits)
  3. Atlanta-Sandy Springs-Roswell, Georgia
    (196,745 permits)
  4. Phoenix-Mesa-Scottsdale, Arizona
    (179,479 permits)
  5. Austin-Round Rock, Texas
    (135,181 permits)

Note that these permits were applied for but not necessarily granted or used. The NAHB uses the volume of permits applied for as a leading indicator of the health of the U.S. housing market. However, it is important investors realize that as a leading indicator, this metric tells us more about what developers think will happen in an area than what is currently happening. Of course, in these top 5 markets, it is evident that there is a lot of new construction activity already. In fact, in many cases investors would be wise to look in proximal areas to these markets rather than attempting to invest right in the hot ZIP codes themselves.