Cities Remain Popular With New Construction Buyers

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Predictions that the coronavirus would drive an exodus from the nation’s cities have not come to pass, even as a shift toward remote work has allowed people to rethink where they want to live.  

The long-term effects of the current market on location preferences are hard to predict — home prices are continuing to rise, mortgage interest rates are at historic lows and inventory shortages are severe. But the snapshot of new construction buyers captured in the Zillow New Construction Consumer Housing Trends Report 2020 shows a slight increase in the number of households who chose newly built homes in urban areas compared with the previous year's report.

These buyers gravitated toward somewhat toward smaller, more affordable homes in urban areas where they are more likely to look to their neighborhoods for a sense of community and belonging.

The findings offer an opportunity to explore some of the differences between urban, suburban and rural buyers, both in what they want and what they buy.

Urban areas gain, but most growth is in the suburbs 

In 2020, 31% of new construction (NC) buyers say they purchased their home in an urban area — up from last year’s 23%. Although the number represents an 8-point gain, it’s considered a slight but significant shift because the pool of NC buyers is relatively small compared to the larger universe of home buyers.

Suburban new construction still captures the majority of buyers, although by a narrower margin this year. Half (50%) of NC buyers say they bought a home in the suburbs, down from the 57% who reported buying there in 2019. 

Urban buyers of brand new homes have a slightly different view of what constitutes new construction than their non-urban counterparts. About three out of four urban buyers (76%) define new construction as a completed home, compared to 56% each of suburban and rural NC buyers.

Urban NC buyers also are less likely to view new construction as a home they can customize — only 45% see it that way. Even fewer define it as a home yet to be built (33%) or a home they need to hire a builder to design and construct (19%).

Their attitudes are likely shaped by their shopping and/or buying experience: 77% of urban buyers of newly built homes purchased one that was move-in ready or under construction. Only 23% had their home constructed after buying a buildable plan.

Smaller houses = smaller price tags

Overall, more NC buyers report choosing smaller, more affordable homes this year. In 2019, a mere 3% said they bought a home that was smaller than 1,000 square feet. This year, 9% did.  

The smaller sizes could be related to the slight shift toward newly built homes in cities, since urban lots are typically smaller — and the land is more expensive — forcing tradeoffs for buyers looking for more affordable options.

Smaller homes, regardless of urbanicity, are typically more affordable. That may be why more NC buyers report paying less than $100k this year, and why a smaller share of buyers say they bought mid-range homes.

Last year, 9% of NC buyers reported paying less than $100,000 for their home compared to 19% this year.  The uptick corresponds to a slight decline in mid-range homes priced between $200,000 and less than $300,000. Last year, 31% reported buying brand-new homes in that price range; this year, 21% did — a 10-point drop.

What buyers want

City dwellers usually have an abundance of options when it comes to dining, arts and social experiences. So it makes sense that urban NC buyers are more likely to place greater importance on neighborhood characteristics than their suburban and rural counterparts. It also may explain why urban NC buyers tend to place greater importance on proximity to family and friends. 

A majority (59%) of urban NC buyers say it’s very or extremely important for them to be near family and friends, compared to only 38% of rural NC buyers and 40% of NC buyers in the suburbs.

They’re also more likely to place greater importance on designated parking.

When it comes to home characteristics, there are some differences worth noting:

• Suburban NC buyers are more likely to say that en suite bathrooms are very or extremely important.
• Urban NC buyers value rental potential much more than suburban buyers (52% of urbanites say the potential to rent out all or part of their home is very or extremely important compared to 22% of suburban NC buyers).
• Urban NC buyers place much greater importance on smart home capabilities than their suburban or rural counterparts: 66% said they were highly important, compared to 37% of suburbanites and 28% in rural areas.
• Urbanites also are more likely to consider a hot tub or pool as highly important (56%) than suburban (23%) and rural (21%) new construction buyers.     

Additional findings and takeaways

Understanding how urban, suburban and rural buyer preferences differ can help you better serve NC buyers wherever they are searching. Here are some steps you can take:

• Post floor plans. Floor plans are generally more likely to attract eyeballs, and suburban NC buyers appear to be especially keen on them: 85% of urban NC buyers and 91% of suburban NC buyers agree that they are more likely to view a home if the listing includes a floor plan they like. Also, 79% of urban and 81% of suburban NC buyers say the only way to really understand the layout of a home is to see it in person. 
• Maintain a positive online reputation. Urban NC buyers are more likely to seek out builders with the highest online ratings (39%) than those in the suburbs (26%) and in rural areas (16%). Urbanites are also less likely to say that online ratings are just one piece of evaluation criteria (40%) than suburbanites and NC buyers in rural areas (both 56%).
• Recognize the importance of shared amenities, such as a clubhouse, fitness center or playground. Urbanites prioritize such features, with 61% saying they’re very or extremely important versus 39% of suburbanites and 18% of rural NC buyers.