Suburban Growth: What’s Driving the Transition from Cities?

America’s suburban surge isn’t a pandemic artifact—it’s a durable rebalancing of housing demand. Families and young professionals continue to trade downtown proximity for more space, stabler monthly costs, and access to schools and everyday services. Hybrid work, tight for-sale supply, and a development pipeline that favors lower-density land are reinforcing the shift toward second-ring suburbs and fast-growing exurbs.

Two structural forces anchor the move. First, flexibility: remote and hybrid work radically widened the acceptable commute radius. WFH Research estimates roughly 28% of paid full days were worked from home in 2024, versus about 5% pre-2020, a level that has plateaued rather than snapped back (WFH Research). Second, affordability: even as urban rents soften at the margin, price per square foot for ownership remains meaningfully lower outside core neighborhoods, enabling buyers to add bedrooms, yards, and garages without proportionally higher payments.

Supply is following demand. Builders and lenders are prioritizing where land is available and approvals move faster. NAHB’s Home Building Geography Index shows single-family construction has shifted toward lower-density suburbs and exurbs since 2020, with these markets posting stronger growth than large metro cores (NAHB HBGI). Meanwhile, elevated mortgage rates—Freddie Mac’s 30-year fixed has hovered near 7% for much of 2024—discourage would-be sellers who refinanced near 3% in 2020–2021, keeping for-sale inventory tight and supporting rental demand in the suburbs (Freddie Mac PMMS).

Key Insights

• Affordability premium: Suburban homes generally deliver lower price per square foot than urban cores, stretching purchasing power for space-sensitive households.
• Hybrid work endurance: Elevated remote/hybrid participation reduces the penalty for living 10–20 miles farther out (WFH Research).
• Supply concentration: Single-family starts and build-to-rent projects are disproportionately sited in lower-density markets where land and zoning align (NAHB).
• Retail follows rooftops: Grocery-anchored centers, childcare, and outpatient healthcare are expanding in roof-count corridors, stabilizing neighborhood cash flows.
• Mortgage lock-in: With current mortgage rates near 7%, many owners with sub-4% loans stay put, constraining listings and supporting suburban rental absorption (Freddie Mac PMMS).
• Risk dispersion: Infrastructure, insurance costs, and climate exposures vary block-by-block; underwriting must be submarket-specific.

Why It Matters

For retail investors, the suburban tilt reshapes both product selection and underwriting. Single-family rentals (SFR), small multifamily near strong school districts, and build-to-rent communities can offer steadier occupancy than urban Class A apartments, often with slightly higher cap rates. Public vehicles—SFR REITs, manufactured housing, and grocery-anchored REITs—provide diversified exposure without property-level headaches. But rent growth is normalizing, and insurance, taxes, and maintenance can erode yields. Success hinges on targeting migration-positive corridors, quantifying operating costs accurately, and stress-testing exits.

Actionable Tips

• Map the price-to-rent gap by ZIP code to find “payment relief” suburbs where monthly costs are materially lower than in the core.
• Focus within 45–60 minutes of major job nodes, especially areas adding schools, grocery-anchored retail, and road capacity.
• Underwrite conservatively: moderate rent growth assumptions and higher operating expenses (insurance, taxes, utilities).
• Stress-test exits with a 50–100 bps higher terminal cap rate and flat-to-2% rent growth scenarios.
• Screen submarkets for infrastructure and climate risk (flood, fire, wind) and verify insurability and deductibles at the parcel level.
• Track local pipelines and permitting trends; avoid pockets facing outsized new supply or expiring abatements.

Bottom line: The suburban renaissance rests on work flexibility, relative affordability, and a supply engine geared to lower-density land. Investors who underwrite submarket-by-submarket—and price in today’s operating and capital costs—can find durable cash flows where rooftops, schools, and services are growing in tandem.