Home-building is floundering against soaring demand, with inventory now at its lowest in two decades. Are any markets keeping up?
New construction is taking off in at least three, where each are expected to gain 40,000 new homes this year, according to a recent study. Activity is exploding in Dallas and Houston, Texas, and New York, N.Y., the study found, with Dallas adding 48,772 homes to its stock, Houston growing by 47,946, and New York expanding by 40,006.
Researchers analyzed building permit data from the U.S. Census Bureau from 1980 to 2016, and the first half of 2017 – which offer a basis to estimate ground-breaking – to project how many new homes will be built across the largest 100 metropolitan areas this year, and which metro areas are constructing more than their historical average. The markets set to have the most permits after Dallas, Houston and New York? Austin, Texas (29,872) and Phoenix, Ariz. (29,280). Austin, markedly, is also outdoing its norm, with 107.7 percent more permits, followed by Charleston, S.C. (72.8 percent more) and Nashville, Tenn. (65.8 percent more).
How are Dallas, Houston and New York coming out ahead when the rest of the country is playing catch-up? Sheer size, for one, but also growth in employment, income and home prices, the study reveals. Home-building is connected to jobs for the simple fact that more jobs provide more residents income, which stokes demand for homes in the market. In fact, in the 100 metro areas assessed, every one percentage point climb in jobs (per data from 2010 to 2016) parallels an average 5 percent rise in permits.
The link between building and income is comparable: a one percentage point increase in the median household income (also using data from 2010 to 2016) leads to a 2.1 percent upswing in permits, on average, the study shows. More pay, the researchers say, ups the ability to purchase a costlier home – and new homes, without question, tend to be higher-priced.
The relationship between building and home prices is also a factor: a one percentage point step-up in home prices results in an average 1.2 percent tick up in permits – but with a significant distinction. Price growth upwards of 24 percent moves the needle in the opposite direction, possibly because at that point, builders begin shouldering higher land costs and incomes start to lag behind prices, researchers speculate.
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