House Hunters Are Leaving the City, but There’s Nothing to

LATHROP, Calif. — They had a down payment. They were prequalified for a mortgage. They were willing to move almost an hour’s drive eastward. But the number that really mattered was “32.”

If a saleswoman standing in a model unit plucked a bingo ball with that number from one of several buckets arrayed on a marble kitchen island, Jezreleen and Eric Namayan would get to pay $662,000 for a five-bedroom home in River Islands, a master planned community built around 13 man-made lakes in California’s Central Valley. If not, the home would go to one of the dozens of other prospective buyers who had lined up next to them on a Zoom webcast of the drawing. The Namayans would remain in a two-bedroom condominium with two teenagers while struggling to penetrate the white hot post-pandemic housing market.

“When they started getting closer to our lot, I almost felt like I was outside looking at myself,” Mrs. Namayan said.

Tired of being cooped up, eager to take advantage of low interest rates and increasingly willing to move two or more hours from the urban core, buyers have propelled new home construction to its highest level since 2006. That was the year when the mid-2000s housing bubble started deflating on its way to what would become the financial crisis and Great Recession.

After a prolonged period of anemic sales since the housing bust, home builders now risk losing business because they can’t supply enough inventory. Home prices have shot up 11.3 percent over the past year, according to CoreLogic, keeping many people out of the market. At the same time, the cost of labor and raw materials — in particular the cost of lumber, which has more than doubled over the past year — is spiraling upward, pushing prices higher still.

Just as notable as the level of new construction is where it is taking place. From the mountains of central Pennsylvania to the one-stoplight towns beyond Houston’s endless expanse to California’s San Joaquin Valley, developers are racing to build homes in areas that buyers used to judge beyond the outer limits of an acceptable commute.

Every housing boom redefines where the city ends. Fields beyond the old suburbs become the site of the new exurbs until the next development wave pushes farther still. Over the past decade, however, as high-paying jobs increasingly concentrated in a handful of big cities, workers from across the income spectrum spent a growing share of their paychecks to live in downtown neighborhoods and commuter-friendly areas.

There was plenty of affordable land on the urban fringes and in smaller cities, but home builders had trouble finding buyers there. The U.S. housing market was held back by a fundamental mismatch: The places where people wanted to live were the places where it was the hardest for developers to build.

Now, after a year of lockdowns and a push to continue working from home even as the pandemic wanes, the preference for closer-in living has weakened. This has helped unleash a wave of home building.

Over the past year, new home construction in small cities and suburban areas rose 15 percent, compared with less than 10 percent in big cities, according to data from the National Association of Home Builders. Would-be homeowners are flocking to the new farthest exurbs, where home builders can meet demand — and together they are again stretching the boundaries of a city and its surrounding sprawl.

“People can move to where it’s more affordable,” said John Burns, chief executive of John Burns Real Estate Consulting. “This is a permanent game changer in the housing market.”
U.S. builders are on a pace to start construction on 1.1 million single-family homes this year, the most since 2006. That is still well below the 2005 peak of 1.7 million homes, but double the sub-500,000 rate in the aftermath of the crash.

Some of this was a natural recalibration: After overbuilding during the housing bubble, then suffering through the Great Recession, developers became more cautious. But the lag was also the result of the extreme difficulty of building homes in the cities where demand was strongest. By the end of 2020, the United States had a supply shortage of 3.8 million homes, according to an estimate from Freddie Mac, the government mortgage finance company. Much of that shortage is in “starter homes” accessible to first-time buyers.

Growth on the urban periphery, while a boon for housing affordability, comes with environmental costs, chewing up farmland and perpetuating the car-centric lifestyles that are a significant contributor to climate change. California, for instance, has a goal to cut greenhouse gas emissions 40 percent below 1990 levels by 2030, but has found it increasingly out of reach as home prices have pushed workers farther from the urban core, where they drive more.

In theory, if more people work from home, even in a hybrid capacity, it would offset some of those emissions by cutting down daily commutes. But the farther people get from the urban density and public transportation, the more dependent they become on cars even for short trips.