NAR Study: New Home Construction Trailing Job Growth in Majority of Metro Areas

New home construction is currently insufficient in a majority of metro areas and is contributing to persistent housing shortages and unhealthy price growth in many markets.

WASHINGTON — September 9, 2015 — Despite positive improvements in the labor market in recent years, new home construction is currently insufficient in a majority of metro areas and is contributing to persistent housing shortages and unhealthy price growth in many markets, according to new research from the National Association of Realtors®.

NAR measured the volume of new home construction relative to the number of newly employed workers in 146 metropolitan statistical areas1 (MSAs) throughout the U.S. to determine whether homebuilding has kept up with the steadily improving pace of job growth in the past three years2. The findings reveal that homebuilding activity for all housing types is underperforming in roughly two–thirds of measured metro areas.

Lawrence Yun, NAR chief economist, says low inventory has been a prevailing headwind to the housing market in recent years. "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," he said. "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."

NAR’s study analyzed job creation in 146 metro areas from 2012 to 2014 relative to single–family and multifamily housing starts over the same period. Historically, 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. The research found that 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.

According to Yun, with jobs now being added at a more robust pace in several metro areas, the disparity between housing starts and employment is widening. 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.

"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 markets with the largest disparity of jobs versus home construction (single–family) and currently facing supply shortages are 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," adds Yun.

Single–family housing starts are seen 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.

Looking ahead, Yun says there’s no question the homebuilding industry continues to face many challenges, including rising construction and labor costs, limited credit availability for smaller builders and concerns about the re–emergence of first–time buyers. However, the strong job growth seen so far in 2015, and only muted gains in single–family housing starts, suggests that sustained price growth will continue to put pressure on affordability.

"The demand for buying has drastically improved this year and is propelling home sales to a pace not seen since 2007," says Yun. "As local job markets continue to expand, the pool of homebuyers will only increase. 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."


1Areas are generally metropolitan statistical areas as defined by the U.S. Office of Management and Budget. NAR adheres to the OMB definitions, although in some areas an exact match is not possible from the available data. A list of counties included in MSA definitions is available at:

2NAR’s study analyzed homebuilding permits and employment data during the years of 2012 through 2014.

1 reply
  1. Ron
    Ron says:

    Not Just Lack of Construction Causing Housing Sho

    All around the country Short Term Vacation businesses are popping up in residential communities causing housing shortages. See the article below. You forgot to reference this problem in your article.

    Airbnb makes housing crisis much worse, city study shows

    Posted on May 14, 2015 by Tim Redmond

    As many as 30 percent of the available rentals in the Mission are off the market and used as hotel rooms; the Chiu legislation is a complete failure

    Susan Whetzel was evicted, and now her apartment is on Airbnb

    By Tim Redmond

    MAY 14, 2015 – As many as 30 percent of the available apartments in neighborhoods like the Mission have been taken off the market and used for short-terms rentals through platforms like Airbnb, a city study shows.

    There’s also a close correlation between then number of Airbnb rentals and the number of evictions, the report shows.

    The study by the Board of Supervisors Budget Analyst confirms what nearly every tenant advocate in the city has been saying for months: The regulatory legislation by then-Sup. David Chiu, which passed last year with the support of Mayor Ed Lee, has been a complete failure.

    The report makes a key distinction between “casual” short-term rentals – places where existing residents occasionally rent out a room in their home to visitors – and “commercial” rentals – apartments or houses that have been converted almost entirely to hotel rooms.

    If an entire place is listed on Airbnb for more than 59 nights a year, the Budget Analyst defined it as a commercial operation. For private and shared rooms in a place where a resident lives, the threshold was 89 nights a year.

    It’s impossible to know exactly how many units are rented out through Airbnb, VRBO, Flipkey or other services, since those hosting platforms refuse to release that date.

    By most estimates, there are at least 5,000 in San Francisco, and possibly twice that number. Share Better SF, the group that’s putting a measure on the fall ballot to more tightly regulate short-term rentals, estimates that there are 4,700 entire units – houses or entire apartments – being used exclusively for Airbnb-type rentals.

    The vast majority are illegal. Under current city law, units have to be registered with the city, and only 282 registrations have been recorded with the City Planning Department.

    This chart shows the correlation between evictions and Airbnb
    This chart shows the correlation between evictions and Airbnb

    The Budget Analyst used far more conservative numbers, assuming a total of about 6,000 units with between 2,000 and 3,000 falling into the commercial category.

    But even with those numbers, the impacts are alarming. In the Haight Ashbury and Western Addition, 31.9 percent of all units that are available for rent have been turned into full-time short-term rentals, meaning they aren’t available for people desperately seeking a place to live. In the Mission, it’s 29.2 percent. In the Castro, it’s 24.6 percent.

    City wide, as much as 23 percent of the available rental housing has gone to Airbnb.

    It’s no wonder that rents have skyrocketed, particularly in neighborhoods with high percentages of the available housing vanishing from the rental market.

    There’s a numerical correlation between the rate of evictions and the number of Airbnb listings, the report found. In the Inner Mission, for example, there were 323 evictions in 2014, and 315 units used as short-term rentals. In the Haight, there were 212 evictions, and 193 STRs.

    Here’s how it works in real life.

    At a press conference this morning, Susan Whetzel described how she was evicted, on what a lawsuit she’s filed claims was a fraudulent pretense, and her apartment was turned into an Airbnb rental.

    Whetzel, who has lived on 18th Street for 10 years, learned in 2012 that her landlord had won a permit to convert to apartment to a condominium. That’s a legal ground for eviction, and in 2014, he tossed her out.

    But she wound up staying with friends next door – “and,” she told me, “I can see the tourists coming in with their suitcases day after day.”

    Whetzel, who works with autistic children, told me she will probably have to leave town and move back East because she will never find an affordable apartment.

    In a lawsuit filed against landlord Peter Louie, Whetzel alleges that the condo conversion was improper: Under city law, you can’t convert a rental unit to a condo unless you live in the building. Louie told the city that he lived there, but she alleges that he never had any residency. In fact, the lawsuit claims, he was living in the East Bay with his wife and family the entire time.

    “At no time during the ten years that [Whetzel] lived in the subject apartment did Louie live in the subject building,” the lawsuit states.

    He certainly isn’t living there now: The place is currently listed on the Airbnb site for $250 a night.

    In other words, she charges, the landlord got rid of a tenant living under rent control and paying $1,700 a month so that he could rent the place out to tourists at $250 a night. Which is roughly five times what she was paying.

    Calls to Louie’s attorney were not returned. In court filings, he has denied the allegations.

    At the press conference, Sup. David Campos, who requested the report, noted that the mayor is seeking a $250 million bond act this fall that would build, at most, 1,000 new units of affordable housing. “And because of Airbnb, we are seeing more than 2,000 units taken off the market,” he said.

    “They are stealing our rental units,” Sara Shortt, director of the Housing Rights Committee, said.

    Campos has legislation that would limit to 60 the number of days a unit can be listed on Airbnb-type platforms – but more important, would mandate that only registered units be listed and that Airbnb share with the city data on the addresses of hosted units and the lengths of time they are rented out.

    There would be stiff fines for both the hosting platforms and the landlords who violate the rules.

    Santa Monica has gone much further: That town has essentially banned commercial short-term rentals. A similar proposal is on the agenda in West Hollywood.

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