In February, new housing construction was stronger in Virginia than it was in many other parts of the country. Nationally, the number of new housing starts was down 10.3% compared to January starts and was 9.3% lower than February 2020 starts. One reason for the drop in new housing construction nationally was weather, including major storms in Texas and the Northeast. But other factors contributed to the national slowdown, including rising building costs and material shortages.

New Housing Construction in Virginia is Still Relatively Strong

There was a total of 2,789 permits issued for the construction of new housing units in Virginia in February 2021. The number of permits was down 15.3% compared to January; however, residential permitting activity was up 8.4% compared to February 2020. Year-to-date, the number of permits issued for new residential construction in Virginia is up 14.2% compared to a year ago.

New residential construction activity has shifted slightly to more multifamily construction in the first part of 2021. As new housing construction ramped up in the second half of 2020, single-family homes accounted for nearly 80% of new residential permits, while units in multifamily buildings accounted for just 20% of new residential permits. In the first two months of 2021, about 68% of permits issued were for the construction of single-family homes, and 32% were for units in multifamily buildings.

Northern Virginia Saw a Surge in New Construction

In the first two months of 2021, there was a total of 2,592 permits issued for new housing units in Northern Virginia, accounting for 43.7% of all new residential permits issued statewide in Virginia. The number of residential building permits issued in Northern Virginia was up 50.9% compared to the first two months of 2020.

Arlington County drove the growth in permits in January and February 2021, with 1,066 permits issued for new multifamily units and 22 permits issued for new single-family units in that one jurisdiction.

About one-fifth of permits issued in Virginia (19.9%) were issued in the Hampton Roads metro area. The number of permits for new housing units was up 12.2% in Hampton Roads compared to a year ago. In the first two months of 2021, new residential permitting activity was also up in the Charlottesville area, though the number of new permits in the Richmond region was lower compared to a year ago.

In parts of the state outside of these four major metro areas, the number of permits issued for new housing was 15.5% lower than a year ago.

New Home Sales Are a Growing Part of the Housing Market

In addition to a national slowdown in new residential construction, new home sales also dipped in February compared to January. However, new home sales were up 8.2% compared to a year ago, and buyers, builders, and REALTORS® all see growing interest in new construction.

More and more buyers are purchasing new homes before construction even begins. About one-third of new homes sold in February 2021 (32%) were sold before construction had even started. This is the highest share of pre-construction sales in at least the last 12 months.

In addition, according to the latest builder sentiment survey from the National Association of Home Builders, while home builders were feeling a little less confident in current market conditions, they report that buyer traffic is steady and sales expectations for the next six months are high.

Virginia REALTORS® report that the limited inventory of existing homes for sale is leading some potential buyers to look to new construction. According to a March 25-28, 2021 survey of Virginia REALTORS® members, more than half of REALTORS® (56%) say that it is either very common or somewhat common to see buyers deciding to build a new home instead of purchasing an existing home.

Demand for new construction is high, and home builders expect that demand to rise this spring. Despite some challenges builders face, overall, the industry expects to be able to build out current sales and hopefully increase production in 2021.