With experts predicting a flight from high-density areas to the suburbs amid COVID-19 and recent statistics showing a 9.1% increase of interest in those areas among homebuyers, a new report from Dodge Data and Analytics shows that the multifamily sector may already be suffering consequences.

In July, readings for single-family sales rebounded after interest rates dropped to below 3%, leading the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index to its second highest mark for that month in the history of the index (which measures the strength of the single-family housing market).

“New home demand is improving in lower density markets, including small metro areas, rural markets and large metro exurbs, as people seek out larger homes and anticipate more flexibility for telework in the years ahead,” said NAHB chief economist Robert Dietz. “Flight to the suburbs is real.” So real, in fact, that combined with COVID-19 it’s crushing multifamily construction in metro areas, Dodge’s research indicates.

New data shows that while multifamily starts were healthy and inching upward through February, they stalled in March. As a result, commercial and multifamily construction starts in the top 20 metropolitan areas dropped by 22% in the first half of 2020 compared to 2019—falling by an average of 25% in second tier metro areas.

“The COVID-19 pandemic and recession have devastated most local construction markets,” said Richard Branch, chief economist for Dodge Data and Analytics. “Across the board, building projects have been halted or delayed with virtually no sector immune from damage.”

Among the top 10 metro areas nationwide, commercial and multifamily starts decreased by 21% compared to the same period last year, with only one posting an increase. Construction in the New York metro area fell by 24% overall, with a 29% drop in multifamily starts, but officials for Dodge say that represents a “relatively sanguine decline given the almost two-month ban on nonessential construction in the city.” Meanwhile, the Washington, D.C., metro area decreased by 42% overall and by 27% in multifamily. Drops were more modest in other places, such as the Dallas, Texas, metro area, which fell by just 2%. Commercial and multifamily starts in Chicago were 9% lower through June, at $3.0 billion.

The exception to this year’s trend includes Phoenix, where multifamily starts rose sharply by 85% compared to the first half of 2019. That increase was fueled by the start of “some sizeable projects,” Dodge reported, including the $300 million Pier 202 mixed-use project and a $125 million Adeline Residences at Collier Center. Both projects are in Tempe, Ariz.

There is hope yet that commercial construction markets will begin a modest recovery in 2020, Branch said. At the same time, the recent uptick of COVID-19 cases across the South and West and the limits of expanded unemployment insurance benefits from the CARES Act, “could undermine the construction sector’s ability to grow,” he said.

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