Housing boom in the exurbs offers investors new opportunities.
Real estate investors looking for their next growth opportunity may need to start looking a bit farther afield than usual. That is because according to a recent report by the National Association of Home Builders (NAHB), the only regions with an annual increase in single-family permits in the first quarter of 2019 were the “exurbs.” These remote areas just outside of the suburbs have long been considered beyond the pale for many single-family rental home buyers, but new activity and strong growth may present exciting new opportunities for investors.
Consider, for example, the recent history of Maricopa, Arizona, a rural community 35 miles from downtown Phoenix. When the housing bubble burst in 2008, Maricopa was hit hard, and as many as four in five homeowners suddenly had outstanding mortgages that far exceeded the value of their properties. Builders were hit especially hard as foreclosures and vacant properties became commonplace. In 2010, the town issued just 110 permits for new home construction. But things have dramatically changed since then. Last year, that number was nearly 1,000 and projected to keep growing through 2019.
Driven by the lack of affordable housing in urban and suburban areas, the exurbs have seen growth unequaled since the last housing boom. Census data shows a new dispersal of the population to rural and exurban areas at levels not registered since 2008. Suburban growth in many areas has trended steadily downward over the last ten years, while nationally growth in urban cores is half of what it was. NAHB Chief Economist Robert Dietz explains that such trends reflect the faster pace of housing cost increases in large metro suburban counties. As affordability worsens, exacerbated by the rising costs of materials and a shrinking inventory of buildable lots, builders are looking beyond the suburbs for new opportunities.
By all accounts, builders have decided that the exurbs are where such opportunities lie. Exurban county growth in many places has quadrupled, or more, since 2008. New homes in the exurbs are attracting homebuyers, often Millennials and retirees, who are increasingly forced to trade proximity to central business districts for affordability. For this reason, metro areas around the country are seeing strong exurban growth. For example, demographics firm Demographia reports that in 2017 the population of Charlotte, North Carolina, was roughly 51 percent exurban, while Orlando, Florida, and San Antonio, Texas, boasted exurban populations at 31 percent and 17 percent, respectively. Those numbers have only increased over the last year.
Around Phoenix, with its exurban population of about 20 percent and growing, exurban starter homes are big business. Meritage Homes Corp, one of the largest home builders in the area, had been building expensive suburban homes for three decades. But as demand for higher-priced properties fell off, Chief Executive Steven Hilton decided to shift gears. In 2018, Meritage acquired 9,000 lots, most of which are located miles from any city center. Of these remote lots, 85 percent are currently slated for entry-level homes, and are reportedly selling about 50 percent faster than other, more expensive properties are.
While the exurbs represent just nine percent of the nation’s single-family construction overall, this kind of growth is hard to ignore. For single-family rental home investors, shifts in affordability and population growth may result in newly expanded opportunities. With the aid of modern technology and an increasingly professionalized raft of property management and other landlord support services, rental property investors can more easily follow and capitalize on housing market trends.