Takeaways:
- Although some analysts have noted that job market growth is fueling a strong housing market and low foreclosure rates, NAR is concerned that it is also contributing to declines in new home construction.
- The association released a study today that shows the volume of new home construction is underperforming in 146 metropolitan areas that have seen big employment gains.
- Housing shortages and unhealthy price growth exist in many key real estate markets — and low inventory has already been a persistent problem in recent years, NAR said.
If you’ve found your dream job in New York City, you may have less good fortune if you want to buy a new home there, research from the National Association of Realtors suggests.
Although some analysts have noted that job market growth is fueling a strong housing market and low foreclosure rates, NAR is concerned that it is also contributing to declines in new home construction.
The association released a study today that shows the volume of new home construction is underperforming in 146 metropolitan areas that have seen big employment gains. The result? Housing shortages and unhealthy price growth in many key real estate markets — and low inventory has already been a persistent problem in recent years, NAR said.
“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,” said NAR Chief Economist Lawrence Yun.
“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.”
Taking a look at job creation in 146 metro areas from 2012 to 2014 relative to single-family and multifamily housing starts over the same period, NAR found that the 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.
Through 2014, 63 percent of measured markets had a ratio above 1.2 and 72 percent had a ratio above 1.6, which indicates inadequate new construction, NAR said. In 2014 alone, the average ratio of single-family permits to employment jumped to 3.7, while the ratio for total permits increased 50 percent to 2.4.
Markets with the largest gap between job creation and single-family home construction are San Jose, California, at 22.6; San Francisco at 22.4; San Diego and New York, both at 13.9; and Miami at 11.1.
“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,” Yun said. “Additionally, our study found that limited construction is a widespread issue in metro areas of all sizes.”
As local job markets continue to expand, the pool of homebuyers will only increase, so it will become crucial for homebuilders to shift their focus from apartments to the purchase market to make up for lost time, Yun warned.
“If not, severe housing shortages and faster price appreciation will erode affordability and remain a burden for buyers trying to reach the market,” he said.