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Dear Consultant: Why Aren’t Developers Building in the Midwest?

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Peter Dennehy

February 14, 2024

Your questions, our expertise.

Why aren’t developers building new communities in the Midwest? Seems like so much land and more than enough wealth.

A lack of builders building new homes in the Midwest is more of a perception than reality. There is steady demand for new housing in the Midwest markets, and many are adding population despite some out-migration.

25 of the top 100 home builders across the US ranked by closings have operations in the Midwest, including 7 of the top 10 US home builders (D.R. Horton, Lennar, Pulte, NVR, Clayton, Century, and Toll) and significant regional home builders focused on the Midwest, such as M/I Homes, Onyx+East, Estridge and Fischer Homes.

We asked our consultants born or living in the Midwest their opinion on the region:

Scott Wild, born in Indianapolis, points out that the high quality of life throughout the Midwest is nothing new. Suburban neighborhoods with good public schools, access to solid job markets, and relative affordability are the norm, particularly in the Great Lake states.

Jeff Kottmeier, from St. Louis, adds that he thinks parts of the Midwest are underrated and that you can’t lump all midwestern cities into one bucket. Just like any region, there are some cities (and especially submarkets) that outperform.

Pawan Thampi, our building products consultant based in Chicago, noted, “Upper Midwestern states like Minnesota and Wisconsin tend to have some of the highest average credit scores in the country, making residents more likely to qualify for mortgages.”

According to our most recent Regional Analysis and Forecast report, the Midwest is ranked #7 among the top 10 US regions, with 13% of total US construction, 168K SF and multifamily annual permits, above-average home appreciation, and low months of supply. Jody Kahn, who conducts our monthly builder survey, points out that monthly builder sales rates and price gains are routinely best in Columbus, Cincinnati, and Indianapolis.

That said, while all regions of the US are expected to post job gains in 2024, we expect the smallest gains in the Midwest. Some Midwest markets are also experiencing less robust population growth and more net out-migration, with fewer corporate relocations attracting young people and an aging demographic relocating elsewhere to be near friends and families. JBREC’s research indicates that while net migration in some cities may be negative, we still expect household growth to be steady, supporting demand for housing. For example, over the last 12 months, household growth in Columbus exceeded 10K (and did so in 2021 and 2022 as well), and Intel is building two chip plants there that will bring in new jobs. That is a lot of people who need homes.

Looking ahead, we expect increased single-family permit volumes in all US markets in 2024, and the Midwest is second only to Florida in the projected increase in single-family permits. Many public home builders anticipate strong community count growth, driven by improved cycle times, increased demand from lower mortgage rates, and ongoing use of mortgage rate buydowns. The Midwest was one of the stronger regions of the US for home price appreciation in 2023.

We believe in the appeal of Midwestern towns, and others are seeing it, too. Our Consulting team receives many inquiries about new residential projects for sale and rent in the Midwest region. Annual net move-ins are increasing, new home inventories are hard to find, and rental projects are leasing quickly. Many move to the Midwest from places you might not expect, including Southern California, Texas, and Florida.

We receive many great Dear Consultant questions. Keep submitting them here, and we’ll continue to provide insight from our consulting team nationwide. Location, product, and strategy can provide opportunities across most of the markets in the US. Reach out to our team if you need help analyzing your next investment!

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About The Author

Peter Dennehy photo
Peter Dennehy
Senior Vice President, Consulting
Peter Dennehy is a consumer and housing industry expert with 30+ years of diverse experience in market research, product segmentation, consumer trends, real estate investing, acquisitions, and project performance evaluation/optimization. His focus is deploying actionable insights from the latest research on the ever-changing intersection of economic and demographic trends, residential product & design innovation, and consumer segmentation and preferences to develop research-driven strategies to create incredible homes and communities.

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