Rising Costs Squeeze Builders Nationwide in 2026
U.S. homebuilding continued to weaken across much of the country in the second quarter, with high financing costs, expensive construction materials and economic uncertainty weighing particularly heavily on single-family development. At the same time, multifamily construction expanded across most geographic markets, highlighting a widening divide between the nation’s for-sale and rental housing sectors.
The shift is also reshaping where new homes are being built. Construction is increasingly moving away from the cores of the nation’s largest metropolitan areas and toward smaller and less densely populated markets, where land is generally more available and development costs are lower.
Those trends emerged in the latest Home Building Geography Index from the National Association of Home Builders, which tracks county-level building activity across seven population-density categories.
Single-family construction declined year over year in six of the seven geographic categories during the second quarter. The pace of contraction nevertheless moderated from the first quarter in six categories, suggesting that the downturn in single-family construction may be losing some momentum even as builders continue to face significant cost and affordability pressures.
The sharpest decline occurred in counties forming the urban cores of large metropolitan areas. Single-family construction there fell 13.9% from a year earlier, the fifth consecutive quarterly decline, although the contraction was less severe than the 15.8% drop recorded in the first quarter.
Across non-rural markets–including counties in small and large metropolitan areas–single-family construction declined 7.3%.
The notable exception was the outlying counties of small metropolitan areas, where single-family construction increased 0.9%. The gain followed four consecutive quarterly declines and compared with a 1.4% contraction in the first quarter and a 1.3% decline a year earlier.
Rural areas also remained under pressure, with construction falling 0.8%.
The weakness in major metropolitan cores is having a measurable effect on the geography of U.S. homebuilding. Large-metro core counties accounted for 14.6% of single-family construction in the second quarter, down 1.3 percentage points from a year earlier–the largest market-share decline among the seven categories.
By contrast, outlying counties of small metropolitan areas posted the largest increase in share, gaining 0.8 percentage point.
The resulting distribution of single-family construction was:
- Large metro core counties: 14.6%
- Large metro suburban counties: 24.0%
- Large metro outlying counties: 9.4%
- Small metro core counties: 29.4%
- Small metro outlying counties: 10.9%
- Micro counties: 7.1%
- Non-metro/micro counties: 4.5%
Where the Shift Is Happening
The geographic shift in U.S. homebuilding is playing out against a broader divergence between expensive major metropolitan cores and the lower-density markets surrounding them. While the HBGI measures construction at the county level rather than ranking individual cities, several major U.S. housing markets illustrate the broader forces reshaping where new homes are being built.
- New York / Northeast: Expensive urban cores, limited developable land and high development costs continue to constrain new housing construction.
Los Angeles / Southern California: Severe land constraints and persistent affordability pressures make new single-family development increasingly difficult in many core markets. - Miami / South Florida: Strong population and housing demand is colliding with exceptionally high land, construction and housing costs.
- Dallas-Fort Worth / Texas: Extensive suburban and exurban development provides builders with opportunities beyond the region’s most densely developed areas.
- Atlanta / Southeast: Continued population growth and metropolitan expansion are pushing residential development into lower-density counties surrounding the urban core.
- Orlando / Central Florida: Housing development continues to extend beyond the traditional urban core as builders seek land and comparatively attainable development opportunities.
- Phoenix / Southwest: Large-scale suburban and exurban development continues to drive the metropolitan area’s outward expansion.
- Charlotte / Nashville / Austin: These rapidly expanding smaller-to-mid-sized metropolitan areas illustrate the continued growth of markets outside the country’s largest urban centers.
These markets are illustrative rather than individual findings of the HBGI. The NAHB index groups counties according to metropolitan size and population density, making it useful for identifying broad geographic patterns rather than determining which individual cities are gaining or losing construction share.
The broader trend, however, is clear: as land, construction and financing costs make development increasingly difficult in major metropolitan cores, builders are looking farther outward–and increasingly toward smaller metropolitan markets–to find locations where new housing can be economically viable.
The geographic migration of construction reflects the growing difficulty of producing relatively affordable homes in expensive metropolitan markets. Higher land, labor and material costs, combined with elevated mortgage rates, have made both construction and home purchases more difficult to finance. NAHB has separately reported that affordability deteriorated in the second quarter, with a typical family needing 34% of its income to cover the mortgage payment on a median-priced new home.
“Builders are finding more opportunities in smaller metro areas, where developable land is generally more available and less expensive,” NAHB Chairman Bill Owens said in the association’s report.
Multifamily Takes a Different Path
The picture was markedly different for multifamily construction.
Multifamily construction increased year over year in six of the seven geographic categories during the second quarter, although the strength of the expansion varied considerably by market.
Large metropolitan core counties recorded an 11.6% increase, marking a significant rebound in an area that had previously experienced weakness. Non-metro/micro counties also posted relatively strong growth, with multifamily construction rising 10.3%.
The shift was reflected in market shares. Large-metro core counties captured 35.4% of multifamily construction in the second quarter, up 1.6 percentage points from a year earlier. Large-metro suburban counties increased their share by 0.5 percentage point to 27.3%.
Together, those two categories accounted for 62.7% of all multifamily construction.
The remaining distribution was:
- Large metro core counties: 35.4%
- Large metro suburban counties: 27.3%
- Large metro outlying counties: 3.3%
- Small metro core counties: 24.3%
- Small metro outlying counties: 5.0%
- Micro counties: 3.5%
- Non-metro/micro counties: 1.2%
The divergence between single-family and multifamily construction underscores how differently the two segments are responding to the current housing market. While high borrowing and construction costs are constraining developers, demand for rental housing remains comparatively resilient.
Still, the multifamily market is not without headwinds. NAHB’s separate second-quarter Multifamily Market Survey showed developer confidence weakening, with financing constraints, regulatory barriers, construction costs and difficulties securing approvals and utility connections continuing to weigh on projects.
A Housing Market Being Redrawn
Taken together, the HBGI data point to a housing market undergoing a geographic rebalancing.
For single-family builders, the economics increasingly favor locations beyond the most expensive metropolitan cores, where land can be cheaper and housing can potentially be delivered at prices more buyers can afford. For multifamily developers, however, demand is increasingly concentrated in major metropolitan cores and suburban markets, where rental demand remains comparatively strong.
The shift comes as the broader U.S. housing market remains constrained by affordability. New-home construction has faced a combination of elevated mortgage rates, rising input costs and cautious consumer demand. More recent data show the pressure continuing: July single-family housing starts fell 9.9% from June and were 15.7% below a year earlier, according to Census Bureau and Department of Housing and Urban Development data cited by NAHB.
The result is an increasingly bifurcated construction market: single-family builders are looking farther from major urban centers for viable development opportunities, while multifamily construction is retaining a strong foothold in the country’s largest metropolitan markets.
For the U.S. housing industry, the implication is significant. Where homes can be built–and at what price–may be becoming as important to future housing supply as the overall level of construction itself.
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