'Dire' Need for New Homes In Most of the U.S.
'Critically Low' Construction Trend is Culprit
Single-family home construction is seriously lacking in 80 percent of the metro areas in the nation, the National Association of Realtors has concluded from a recently completed research study.
New home development is falling well short of the pace of job growth in most of the U.S., the NAR said. This trend is making housing much more costly and preventing many people from entering the home-buying market.
The NAR says its research findings are "startling," and that the need for single-family homes is "dire" throughout most of the country. Half of the top 10 areas with the largest deficit of newly built homes are in the West.
NAR researchers compared new home construction records to job gains data over a three-year period (2013-2015) in 171 metropolitan statistical areas. They found housing inventory shortages in practically every region, a problem caused by "critically low" new home construction.
"Inadequate single-family home building since the Great Recession has had a detrimental impact on the housing market by accelerating price growth and making it very difficult for prospective buyers to find an affordable home -- especially young adults," said Lawrence Yun, chief economist for the NAR. "Without the expected pick-up in building as job gains rose in recent years, new and existing inventory has shrunk, prices have shot up and affordability has eroded despite mortgage rates at or near historic lows.
"Historically, the average ratio for the annual change in total jobs to permits is 1.6 for single-family homes," Yun said. "The research found that 80 percent of measured markets had a ratio above 1.6, which indicates inadequate new construction in most of the country. The average ratio for areas examined was 3.4."
NAR researchers then calculated the amount of permits needed in each metro area to return their respective ratios back to 1.6. The number of permits a metro area required determined the severity of its housing shortage.
The top 10 metro areas with the greatest need for additional single-family homes were (in descending order):
New York (218,541 permits required)
Dallas (132,482 permits required)
San Francisco (127,412 permits required)
Miami (118,937 permits required)
Chicago (94,457 permits required)
Atlanta (93,627 permits required)
Seattle (73,135 permits required)
San Jose, California (69,042 permits required)
Denver (67,403 permits required)
San Diego (55,825 permits required)
Single-family housing starts are seen as adequate to local job growth (at a ratio of 1.6) in Pensacola, Florida; Huntsville, Alabama; Columbia, South Carolina; and Virginia Beach, Virginia.
The NAR also found some good news. It seems the ratio in many areas moved slightly downward in 2015 compared to 2014. Builders are starting to increase the housing inventories in certain regions.
"However, it'll likely be multiple years before inventory rebounds in many of the markets because homebuilders continue to face a plethora of hurdles, including permit delays, higher construction, regulatory and labor costs, difficulty finding skilled workers and the exhausting process many smaller builders go through to obtain financing," Yun said.