Top Markets for Ground Up Construction in 2026

Where building new makes more sense than buying existing—and how to make the numbers work in a $428K average construction cost environment.

Here’s a question that’s become increasingly relevant: at what point does it make more sense to build than to buy?

The answer depends entirely on market conditions—and the data is pointing toward construction as a viable path in more markets than you might expect. According to NAHB’s 2024 Cost of Constructing a Home survey, the average single-family home now costs $428,215 to build—about $162 per square foot—the highest in the survey’s history. But within those national averages, regional variations create opportunities: the East South Central division (Alabama, Kentucky, Mississippi, Tennessee) builds at $133/SF, while New England exceeds $282/SF.

Meanwhile, the housing shortage persists. NAHB estimates a deficit of 1.5 million units; Freddie Mac puts it at 3.8 million. Either way, there aren’t enough homes—and someone has to build them.

Our construction loan program is designed to support investors through the complexity—but you still need to pick the right markets and structure deals that work. This guide will show you where ground-up construction makes sense in 2026, whether you’re building to sell (spec) or building to rent (BTR).

The National Construction Landscape: 2024-2025 Reality Check

Before diving into specific markets, you need to understand the forces shaping construction economics right now. This isn’t 2019—the math has changed fundamentally.

Construction Cost Fundamentals (NAHB 2024 Data)

• Average total construction cost: $428,215 per home—highest in survey history
• Average cost per square foot: $162/SF (up from $153 in 2022)
• Average home size: 2,647 SF (down from peak of 2,802 SF in 2015)
• Construction as % of sale price: 4%—record high since 1998
• Finished lot cost: 7% of sale price (down from 17.8% in 2022)
• Average builder profit margin: 0% (up from 10.1% in 2022)

Regional Cost Variations (Median $/SF, 2024)

Most Expensive Regions:

• New England: $282/SF (spec homes excluding lot)
• Pacific: $223/SF
• Middle Atlantic: $188/SF (custom homes)
• California: $400+/SF in major metros

Most Affordable Regions:

• East South Central: $133/SF (AL, KY, MS, TN)—lowest in nation
• West South Central: $138/SF (TX, OK, AR, LA)
• South Atlantic: $144-147/SF
• Mississippi: $110-180/SF for new construction—among lowest nationally

Housing Production Statistics (2024)

• Single-family permits issued: 981,911 (up 6.7% YoY)
• Single-family starts: 01 million (up 6.5% from 2023)
• Total housing starts: 36 million (down 3.9% from 2023)
• Multifamily permits: 489,533 (down 12.8% YoY)
• New home sales share: 5% of total market—highest since 2005
• Homes under construction: 641,000 single-family (down 5.3% YoY)

Top States for Single-Family Permits (2024)

1. Texas: 158,544 permits (up 9.3% YoY)
2. Florida: Second highest (down 0.9% YoY)
3. North Carolina: Third highest (up 6.7% YoY)

Top 10 states: 63.1% of all single-family permits

The takeaway: Construction costs are at record highs, but regional variation is massive. Building in Alabama or Mississippi costs roughly half what it costs in New England. Meanwhile, single-family production is recovering while multifamily cools—creating market positioning opportunities for investors who understand local dynamics.

The Five Headwinds: Why Construction Is Hard Right Now

NAHB Chief Economist Rob Dietz frames the construction challenge as the “Five Ls”: lending, labor, lumber, lots, and laws. According to the Fall 2025 HBI Construction Labor Market Report, the skilled labor shortage alone creates a $10.8 billion annual economic impact.

Labor Shortage: The $10.8 Billion Problem

• Monthly worker shortfall: 350,000 workers nationwide
• Annual economic impact: $10.8 billion ($2.66B higher carrying costs + $8.14B lost production)
• Homes not built due to shortage: 19,000 annually
• Additional timeline per project: ~2 months added to average construction timeline
• Required annual hiring: 723,000 workers per year
• Current residential workers: 3 million payroll employees
• Wage growth (residential): 2% YoY (July 2025)—outpacing inflation
• Average hourly earnings: $37.20/hour for production workers
• Immigrant workforce share: 5% overall, 33%+ in construction trades—historic high
• Gen Z participation: 1% of workforce (up from 6.4% in 2019)

Lot Shortage: 64% of Builders Report Constraints

• Builders reporting lot shortage (May 2025): 64%
• Shortage breakdown: 38% “low supply,” 26% “very low supply”
• Peak shortage: 76% in 2021 (post-pandemic)
• Pre-2016 comparison: Never exceeded 53%, even in 2005 when starts topped 2 million

Material & Tariff Pressures

• Construction materials since Dec 2020: Up 34%
• 2025 effective tariff rate: 8%—highest since 1934
• Lumber prices: $550-650 per 1,000 board feet (was $300 pre-2020)
• Labor wage growth (2025): 1% projected increase
• Energy code compliance: Adding $10,000-30,000+ per project
• Regulatory costs: ~25% of new home purchase price

Strategic implication: The labor shortage alone adds two months to typical timelines and costs builders nearly $11 billion annually. Factor in lot shortages, material costs, and regulatory burdens, and you understand why only certain markets pencil for ground-up construction. The winners will be investors who find pockets where land is available, labor is accessible, and regulatory environments support building.

The Build-to-Rent Explosion: 2024 Data and 2025 Pipeline

The build-to-rent sector hit historic highs in 2024 and shows no signs of slowing. According to Point2Homes/Yardi Matrix data, 39,000 single-family rentals were completed in 2024—up 15.5% from 2023 and roughly 6x the 6,000-7,000 units coming online pre-pandemic.

National BTR Statistics

• 2024 BTR completions: 39,000 units—record high
• YoY growth: 5% increase from 2023
• Total BTR starts (including investor purchases): 130,520 units—134% increase since 2019
• BTR share of single-family construction: 2-9.0% (up from 3% pre-2020)
• Units currently under construction: 76,000 units
• Units in permitting pipeline: 34,000 units
• Total pipeline (construction + planned): ~110,000 units
• National BTR inventory (2024): 217,161 units (doubled from 107,000 in 2019)
• Renters by choice (2024): 36% (up from 27% in 2023)

Top BTR Markets by 2024 Completions

1. Phoenix, AZ: 4,460 units (+18% YoY)—leads nation
2. Dallas, TX: 3,197 units
3. Atlanta, GA: 3,035 units (+15% YoY)
4. Houston, TX: 2,505 units (+187% YoY)
5. Charlotte, NC: 1,415 units
6. Jacksonville, FL: 1,201 units
7. Huntsville, AL: 1,098 units (+255% YoY—largest percentage jump nationally)
8. Columbus, OH: 1,018 units
9. Tampa, FL: 1,005 units

Top BTR Markets by Pipeline (Under Construction + Planned)

1. Phoenix, AZ: 13,010 units—18% of national pipeline
2. Dallas, TX: 8,450 units
3. Atlanta, GA: 6,644 units
4. Charlotte, NC: 4,886 units
5. Houston, TX: 3,969 units

Other notable pipelines: Austin (610), Indianapolis (538), Orlando (570), San Antonio (in top 10)

5-Year BTR Inventory Growth (2019-2024)

• Phoenix: 12,702 units added (+309%)
• Dallas: 10,413 units added (total inventory now 14,682)
• Atlanta: 7,553 units added (from 547 to 8,100+—15x increase)
• Houston: 5,250 units added
• Huntsville: 1,368% inventory increase—fastest growth nationally

BTR Demand Drivers

• Primary demographic (64% of experts): Millennials driving demand
• Secondary demographic (49%): Gen Z (despite only 3% of homebuyer market)
• Most popular BTR style (53%): Townhomes
• Mortgage vs. rent gap: Average mortgage payment 52% higher than average rent (Q2 2024)
• Housing shortage supporting BTR: 9 million unit shortfall (CBRE estimate)

Construction Cost Reality Check

Before we talk markets, let’s establish baseline construction economics. These numbers vary significantly by market, but here’s a framework based on current data:

Hard Costs by Construction Type

• Entry-level spec home: $120-150 per square foot
• Mid-market spec home: $150-200 per square foot
• Custom/luxury: $200-300+ per square foot
• National average (NAHB): $162/SF ($428,215 total for 2,647 SF home)
• 2,000 SF entry-level in favorable market: $240,000-300,000 hard costs

Soft Costs (Plan for 25-40% on Top of Hard Costs)

• Permits and fees: 2-5% of hard costs
• Architecture/engineering: 3-8% of hard costs
• Financing costs: 10-15% of hard costs (interest, points, fees)
• Contingency: 10-15% of hard costs
• Total soft costs: Typically 25-40% on top of hard costs

Land/Lot Costs (The Wild Card)

• Midwest/Southeast markets: $20,000-60,000 per lot
• Texas/Arizona suburbs: $40,000-90,000 per lot
• Desirable metro suburbs: $60,000-150,000 per lot
• Coastal California/NE: $200,000+ per lot
• Washington State average: $287,000/lot (Seattle-area counties)

All-In Example: 2,000 SF Spec Home in Favorable Market

• Land: $50,000
• Hard costs: $280,000 ($140/SF)
• Soft costs: $85,000 (30% of hard)
• Total all-in: $415,000
• Comparable new construction retail: $520,000
• Gross margin: ~25%—that’s a deal worth building

Top Markets for Spec Home Construction

These markets offer the best dynamics for build-to-sell projects: reasonable construction costs, strong buyer demand, manageable permit timelines, and sufficient margins.

1. San Antonio, TX

Key Metrics

• State single-family permits: 158,544 (2024)—leads nation, up 9.3% YoY
• Regional construction cost: $138/SF (West South Central—among lowest nationally)
• Lot costs: $40-80K in buildable suburban locations
• Construction costs: $130-160/SF for entry-level product
• Retail pricing: $300-400K for 1,800-2,200 SF homes
• BTR pipeline: Among top 10 metros nationally
• Employment drivers: Military (5 bases), healthcare, cybersecurity

Why it works: Favorable combination of affordable lots, below-average construction costs (West South Central region at $138/SF), and strong buyer demand from military and healthcare employment. Texas permit environments are generally efficient. Our Texas lending guide covers state-specific considerations.

Watch-outs: Property taxes are high and impact buyer qualification. Focus on price points where military housing allowances align with mortgage payments.

2. Huntsville, AL — The BTR Breakout Star

Key Metrics

• 2024 BTR completions: 1,098 units (+255% YoY—largest percentage jump nationally)
• BTR inventory growth (2019-2024): 1,368%—fastest growth of any metro
• 2024 single-family permits: 1,116 (45% of residential permits)
• Regional construction cost: $133/SF (East South Central—lowest in nation)
• Lot costs: $30-60K
• Construction costs: $120-150/SF
• Retail pricing: $280-380K
• Median home price (Nov 2025): $345,000
• Days on market: 83 days median
• Employment drivers: NASA Marshall Space Flight Center, Redstone Arsenal, 500 FBI employees relocating

Why it works: Aerospace and defense employment driving sustained population growth. Alabama’s East South Central region has the lowest construction costs in the nation ($133/SF). Huntsville’s BTR explosion (255% YoY growth) validates strong rental demand. Professional/engineering buyer pool with stable incomes.

Watch-outs: Competition heating up rapidly given BTR success. Verify subcontractor availability—the market may be absorbing capacity. Space Command relocation will further accelerate demand.

3. Boise Metro, ID (Outer Suburbs)

Key Metrics

• State permits per capita: Among highest nationally
• Population driver: Strong California migration continues
• Target areas: Meridian, Nampa, Caldwell (outer suburbs)
• Lot costs: $50-90K
• Construction costs: $150-180/SF
• Retail pricing: $400-500K

Why it works: Core Boise is expensive, but outer suburbs still offer spec opportunities. Remote worker migration from higher-cost states brings qualified buyers with equity to deploy. Idaho’s business-friendly environment and lower taxes attract both residents and builders.

Watch-outs: Idaho multifamily permits dropped 53% YoY in 2024—watch for oversupply concerns. Core Boise lots are expensive; focus on true suburban locations.

4. Raleigh-Durham, NC

Key Metrics

• State single-family permits: Third highest nationally (up 6.7% YoY)
• BTR pipeline: 936 units under construction (among top metros)
• State BTR inventory growth: 152% projected increase (highest percentage among leading states)
• Target submarkets: Clayton, Fuquay-Varina, Wake Forest
• Lot costs: $60-100K
• Construction costs: $140-170/SF
• Retail pricing: $380-480K

Why it works: Research Triangle growth supports sustained buyer demand from tech and biotech employment. North Carolina will see a 152% increase in BTR inventory once current pipeline delivers—validating rental demand thesis. Core Triangle lots are expensive, but outlying areas still pencil for both spec and BTR.

Watch-outs: Charlotte BTR pipeline (4,886 units) is massive—competition for subcontractors may affect timelines statewide. Core market land costs are rising; focus on emerging suburbs.

5. Phoenix Metro (Far Suburbs)

Key Metrics

• 2024 BTR completions: 4,460 units—leads nation (+18% YoY)
• BTR pipeline: 13,010 units—18% of national pipeline
• 5-year BTR growth: 12,702 units added (+309%)
• Population growth (2023-2024): 85,000 new residents—6th highest net growth nationally
• Target submarkets: Queen Creek, Buckeye, Maricopa
• Lot costs: $50-90K (far suburbs)
• Construction costs: $140-170/SF
• Retail pricing: $380-480K

Why it works: Phoenix is the undisputed capital of BTR development—the data proves institutional and individual investors are finding success. Year-round construction season. Pro-growth permitting environment. Strong population inflows despite rate environment. Core Phoenix lots are expensive, but far-flung suburbs offer affordable land with commuter demand.

Watch-outs: The 13,010-unit pipeline is enormous. Watch for oversupply in specific submarkets. Flip ROI has compressed (single-digit net returns)—BTR math may work better than spec in core areas. Water concerns remain a long-term consideration.

Top Markets for Build-to-Rent (BTR)

Building rentals from the ground up is increasingly popular—and increasingly competitive as institutions enter the space. Our Build to Rent financing offers one-time close construction-to-permanent loans that eliminate refinance risk.

1. Indianapolis, IN

Key Metrics

• BTR pipeline: 538 units planned/under construction
• State foreclosure rate: 1 in 976 housing units (4th highest nationally)
• Median home price: $259,800 (January 2025)
• Days on market: 34 days
• Housing inventory: Up 14.3% YoY
• BTR economics: Build for ~$300K all-in, rent for $2,200/month, DSCR 1.25+ at stabilization

Why it works: Strong rental demand meets affordable construction costs. Institutional BTR competition exists but hasn’t squeezed out individual investors yet. Central location and diverse economy reduce concentration risk. The 538-unit pipeline is manageable relative to metro size.

Typical deal: Build 1,600 SF home for $280-320K all-in, achieve $2,000-2,400/month rent, DSCR >1.2 for refinance.

2. Columbus, OH

Key Metrics

• 2024 BTR completions: 1,018 units (joined 1,000+ club)
• BTR pipeline: Among top Midwest markets (per RealPage)
• Ohio average flip ROI: 56% gross—validates real estate demand
• Population growth: 24% (2022-2023)—fastest-growing Midwest metro
• Intel investment: $20B chip manufacturing facility
• BTR economics: Build for ~$320K all-in, rent for $2,100-2,400/month

Why it works: Growing metro with strong employment fundamentals from Ohio State, healthcare, and now Intel’s semiconductor investment. Newer rental product commands premium rents versus aging housing stock. Columbus broke into the 1,000+ BTR completions club in 2024—institutional validation.

Typical deal: Build 1,800 SF home for $300-340K all-in, achieve $2,100-2,400/month rent.

3. Tampa Bay, FL (Pasco/Hillsborough Exurbs)

Key Metrics

• 2024 BTR completions: 1,005 units (joined 1,000+ club)
• State BTR completions: 5,379 units in Florida (2024)
• State BTR pipeline: 7,792 units under construction statewide
• Foreclosure rate: Florida leads nation (1 in 2,182 housing units)
• CoStar retail ranking: #2 nationally for total return (7.8%)
• BTR economics: Build for ~$380K all-in, rent for $2,400-2,800/month

Why it works: Strong population growth continues. New construction commands premium rents from tenants who want modern amenities. Tampa Bay shows resilience vs. coastal Florida metros struggling with insurance. No state income tax.

Watch-outs: Insurance is THE issue in Florida. Verify insurability and cost before acquisition. Focus on newer construction and elevated properties to minimize insurance friction.

4. Dallas-Fort Worth (Outer Ring)

Key Metrics

• 2024 BTR completions: 3,197 units (second nationally)
• BTR pipeline: 8,450 units (second nationally)
• 5-year BTR growth: 10,413 units added (total inventory now 14,682)
• Population growth (2023-2024): Texas added 563,000 residents
• Target submarkets: Forney, Fate, Midlothian
• BTR economics: Build for ~$350K all-in, rent for $2,200-2,600/month

Why it works: Massive metro with strong rental demand. Texas added more new residents than any other state. DFW’s 14,682-unit BTR inventory and 8,450-unit pipeline prove institutional validation. Areas like Forney, Fate, and Midlothian offer affordable lots with Dallas commuter demand.

Watch-outs: Competition is fierce. Property taxes are high and affect DSCR calculations. Focus on price points where rent-to-value ratios support strong debt service coverage.

5. Atlanta Metro (Exurbs)

Key Metrics

• 2024 BTR completions: 3,035 units (+15% YoY, third nationally)
• BTR pipeline: 6,644 units (third nationally)
• 5-year BTR growth: 7,553 units added—inventory grew 15x from 547 to 8,100+
• 2024’s share of 5-year completions: 40%—accelerating growth
• State BTR completions: 4,095 units in Georgia (2024)
• Population growth: 75,000+ new residents (2023-2024)
• Target submarkets: Covington, McDonough, Dallas (GA)
• BTR economics: Build for ~$330K all-in, rent for $2,100-2,400/month

Why it works: Atlanta’s BTR inventory grew 15x in five years—from 547 to 8,100+ units. The 40% acceleration in 2024 shows momentum is building, not fading. Strong rental demand from Delta, Home Depot, and tech employment. Affordable construction in outer areas. Our Georgia lending guide covers local nuances.

Watch-outs: The 6,644-unit pipeline is significant. Competition from institutional developers is real. Traffic patterns matter—properties with long commutes lease slower.

Markets with Favorable Permit Environments

Permit timelines can make or break construction economics. Every month of delay is another month of interest on your construction loan and another month before you can sell or rent.

Builder-Friendly States

1. Texas: Generally efficient permitting, especially suburbs. 158,544 SF permits (2024)—nation’s leader.
2. Florida: Variable but generally reasonable outside Miami-Dade. 5,379 BTR completions (2024).
3. Arizona: Pro-growth permitting environment. Phoenix 20-day permitting process. Year-round construction.
4. Tennessee: Business-friendly state with efficient processes. No state income tax.
5. Indiana: Reasonable timelines in most jurisdictions.
6. Alabama: Lowest regional construction costs ($133/SF) plus manageable permitting.

Challenging Permit Environments

1. California: $400+/SF construction costs. CEQA requirements. Massive delays. Online permitting mandates by 2028.
2. Seattle: Permitting backlog and regulatory complexity.
3. Portland: Similar to Seattle with additional state-level requirements.
4. New York: Unless you have serious experience, avoid. Complex approvals.
5. Hawaii: $300-600/SF construction costs—highest nationally. Limited contractor availability.

Construction Financing Options

At American Heritage Lending, we offer construction financing through two primary structures. Our construction loan product page has full details.

Ground Up Construction Loans

Finance the acquisition and construction phases only, then refinance or sell upon completion.

• LTC: Up to 95% loan-to-cost
• Interest Reserves: Available
• Financing For: Part of acquisition, soft costs, and vertical construction
• Terms: 12-18 months
• Draw Process: Virtual inspections only, 48 hour reimbursement time
• Rates: From 9-12%
• Pricing Options: Deferred points and 0 Point Program available

Construction-to-Permanent (One-Time Close)

Our Build to Rent program combines construction and permanent financing in a single closing, eliminating refinance risk and saving closing costs.

• Structure: Construction phase converts to DSCR loan upon completion
• Closings: No second closing, no second closing costs
• Ideal for: BTR investors who plan to hold long-term

Risk Factors to Consider

Cost Overruns

Construction projects almost always cost more than estimated. With materials up 34% since 2020 and labor shortages adding two months to timelines, budget 10-15% contingency—and don’t spend it on upgrades. Keep it for surprises.

Timeline Delays

Weather, permit delays, contractor issues, material shortages—things happen. The 350,000 monthly worker shortfall means delays are structural, not episodic. Budget for longer timelines than your contractor promises.

Market Changes

You’re building into a future market, not today’s market. With 110,000 BTR units in the pipeline nationally and 64,200 currently under construction, some submarkets may experience oversupply. Make sure your margins can absorb adjustment.

Contractor Risk

Vet your builder carefully. Check references, verify insurance, and consider bonding for larger projects. A contractor default mid-project is catastrophic. With 80-90% of contractors reporting difficulty hiring qualified workers, even good contractors face execution challenges.

The Bottom Line

Ground-up construction isn’t for everyone. It requires more capital, more patience, and more tolerance for uncertainty than buying existing properties. The labor shortage alone is costing the industry $10.8 billion annually and resulting in 19,000 fewer homes built.

But in the right markets, with the right deals, building new offers advantages that existing inventory can’t match:

• Better product—new construction commands premium rents and attracts qualified tenants
• Better margins—in favorable markets, you can build for 70-80% of retail value
• Better positioning—39,000 BTR completions in 2024 prove institutional validation
• Better control—you design the product, control the timeline, and eliminate deferred maintenance

The markets that work in 2026:

• Huntsville (+255% BTR growth, lowest regional costs at $133/SF)
• Phoenix (national BTR leader, 13,010-unit pipeline)
• Dallas-Fort Worth (8,450-unit pipeline, massive population growth)
• Atlanta (15x BTR inventory growth in 5 years)
• Columbus/Indianapolis (Midwest value with institutional validation)
• San Antonio/Raleigh-Durham (spec-friendly with strong buyer demand)

If you’re considering a construction project—spec or BTR—contact our team to discuss financing options. We’ve helped investors across the country structure construction deals that work. Call (800) 745-9280 or get prequalified online.

Data Sources

• NAHB Cost of Constructing a Home Survey 2024
• NAHB Building Permits Data Portal
• HBI Fall 2025 Construction Labor Market Report
• Point2Homes BTR Completions Report (March 2025)
• Arbor Single-Family Rental Investment Trends Report
• CBRE Build-to-Rent Market Overview 2024
• RealPage BTR Analytics
• Fixr Build-to-Rent Homes Report 2025
• U.S. Census Bureau New Residential Construction
• U.S. Census Bureau Building Permits Survey
• Yardi Matrix BTR Data (March 2025)
• CoStar 2025 Retail Market Rankings