Detached houses on a large housing development on the western side of Nashville, Tennessee.
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This story is part of CNBC’s new quarterly Cities of Success series, which explores cities that have been transformed into business hubs with an entrepreneurial spirit that has attracted capital, companies and workers.
Nashville natives say they barely recognize the city’s skyline anymore, and they probably won’t anytime soon, as cranes still litter the picture.
The Nashville building boom is in full effect despite higher interest rates, higher home prices and a weaker national economy.
It began well before the pandemic-induced mass migration from big cities to smaller, more affordable ones. During the Great Recession after the 2008 financial crisis, workers were looking for an urban vibe but with cheaper housing. At the time, that was Nashville.
“We’ve had a big, big change coming out of 2008, 2009. We had this huge boom that kind of went through in Nashville that kind of phased in and maintained a steady momentum up to really the last three years,” said John Eldridge, CEO of E3 Construction Services, a homebuilding company that operates in the area.
Eldridge began building in Nashville in 2008, just as most national builders had gone underground, smarting from one of the worst housing crashes in history. In just a few years, the Nashville market suddenly took off due to an influx of buyers from the coasts looking for cheaper housing.
Single-family home construction permits jumped nearly 25% in 2015 from the year before, three times the growth rate nationally, according to John Burns Research and Consulting. Eldridge told CNBC he’s still just trying to keep up.
“We don’t currently have any houses that are built, completed, that are for sale, that haven’t been sold,” Eldridge said.
Housing demand in Nashville pulled back some during the first years of the Covid-19 pandemic, but the city ranked in the top 10 for homebuyers looking to relocate to a new metro area in October, with people most commonly moving in from Los Angeles, according to a recent report from Redfin, a national real estate brokerage.
“It’s not just economics. It’s our climate here, it’s our four distinct seasons, it’s our culture here, it’s our location. I mean, we’re within 500 miles of about two-thirds of the population of the United States,” said Eldridge.
But growth has come with growing pains. After the gold rush, housing has become less and less affordable.
Special education teacher Madison Cartularo, a native New Yorker, moved to Nashville after graduating from college a few years ago.
“Even in the last two years, since I’ve moved here, rent is going up,” she said.
Cartularo was enticed by the strong public school system and the small city feel.
“I knew that after graduating that I wanted something bigger and something more livelier, especially being in my early 20s. I knew that I would want something with a lot of other younger people and a livelier nightlife scene, and I knew that Nashville would offer that to me,” she said.
On a teacher’s budget, she was also looking for something more affordable. That didn’t exactly happen.
After first living with a roommate, Cartularo then moved to a downtown studio apartment and is paying about $1,600 a month in rent.
“I think it’s a lot. I think it’s ridiculous. No one should have to pay that much money. That’s like half of my paycheck,” Cartularo said, adding she wouldn’t be able to afford to live in Nashville without a second job.
If renting is ridiculous, so too is homebuying.
While home prices nationally are up 47% from the start of the pandemic, Nashville prices are up 55%, according to ICE Mortgage Technology. It now takes 44% of the median household income in Nashville to afford the median-priced home, well above the long-time Nashville average of just 23%.
Of the nation’s top 50 housing markets, Nashville ranks 41st for affordability, according to ICE.
“What we’re seeing housing prices and rents go to is very foreign to what they would call affordable,” said Eldridge. “And we also are seeing a cost change, the difference in what it costs us to develop and build things as Nashville has grown, anything from just our land acquisitions, to the actual sticks and bricks, hasn’t done anything except for be a straight line up for the last decade.”
Higher interest rates have made homebuilding harder, and the pace has slowed because of it, but commercial construction downtown is still prolific.
“I think the reason Nashville has done so well recently and why it will continue to do well is it’s a place that employers and employees want to be,” said Janelle Gallagher, first vice president for CBRE in Nashville.
Gallagher has been working in Nashville’s commercial real estate sector since moving to the city over a decade ago. In just the past four years, she has watched the office supply jump 15% despite a slow return to offices nationwide.
“People are coming to the office here. We’re seeing a lot of corporations make big announcements that ‘Our staff needs to come back to office,'” she said.
It’s not just back to office, it’s the influx of new tenant types.
“We’ve got music and entertainment, and that’s certainly part of our history and kind of our culture, but we’re seeing a lot of professional services: law firms, banks, tech, automotive, health care,” Gallagher added.
That has developers putting in more apartment towers downtown as well as retail stores and restaurants to serve them all.
Nashville’s economy may be booming but some say the growth came too quickly, and the city is now paying a price.
“I think for most of us that have been longtime Nashvillians, the congestion and traffic count is infinitely more than it’s ever been,” said Eldridge.
Developers like Eldridge are adding water and sewer lines, but the city is lagging on transportation. Last April, Tennessee Gov. Bill Lee signed the Transportation Modernization Act, a $3.3 billion investment to accommodate the state’s record growth.
TUNE IN: The “Cities of Success” special featuring Nashville will air on CNBC on Dec. 6 at 10 p.m. ET.
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