New-Home Construction Is Trailing Job Growth
Article by Daily Real Estate News | September 10, 2015
New-home construction is insufficient in the majority of metro areas and is likely to lead to housing shortages and unhealthy price growth, according to new research by the National Association of REALTORS®.
In its analysis, NAR measured the volume of new-home construction to the number of newly employed workers in 146 metro areas over the past three years from 2012 to 2014. Researchers found that homebuilding activity for all housing types was underperforming in about two-thirds of the metro areas tracked.
“In addition to slow housing turnover and the diminishing supply of distressed properties, lagging new home construction – especially single-family – has kept available inventory far below balanced levels,” says Lawrence Yun, NAR’s chief economist. “Our research shows that even as the labor market began to strengthen, homebuilding failed to keep up and is now contributing to the stronger price appreciation and eroding affordability currently seen throughout the U.S.”
The study found that the historical average ratio for the annual change in total workers to total permits is 1.2 for all housing types and 1.6 for single-family homes. However through 2014, 63 percent of markets tracked had a ratio above 1.2, and 72 percent had a ratio above 1.6 — which indicates inadequate new construction.
With jobs being added at an increasing pace in many markets, the widening gap between housing starts to employment is alarming, Yun says.
In 2014, the average ratio of single-family permits to employment jumped to 3.7, while the ratio for total permits rose 50 percent to 2.4.
“Affordability issues for buying and renting because of low supply are already well-known in many of the country’s largest metro areas, including San Francisco, San Diego and New York,” says Yun. “Additionally, our study found that limited construction is a widespread issue in metro areas of all sizes.”
The study found that the markets with the largest disparity of jobs versus single-family home construction were in San Jose, Calif. (at 22.6); San Francisco (22.4); San Diego and New York (at 13.9); and Miami (11.1).
“While construction is limited in some markets – such as Trenton-Ewing, N.J., and Rockford, Ill. – they aren’t facing inventory shortages despite having high ratios because their job gains are more moderate,” Yun says.
Single-family housing starts also were found to be as nearly adequate to local job growth (a ratio of 1.6) in Jackson, Miss.; Colorado Springs, Colo.; Chattanooga, Tenn.; Amarillo, Tex.; and St. Louis.
“As local job markets continue to expand, the pool of home buyers will only increase,” Yun says. “That’s why it’s crucial for builders to begin shifting their focus from apartments to the purchase market and make up for lost time. If not, severe housing shortages and faster price appreciation will erode affordability and remain a burden for buyers trying to reach the market.”
Source: National Association of REALTORS®; REALTOR® Magazine Online, Daily Real Estate News 091015