The WPJ
Top 10 U.S. Cities in Dire Need of New Housing Starts Revealed

Top 10 U.S. Cities in Dire Need of New Housing Starts Revealed

Residential News » New York City Edition | By Michael Gerrity | September 21, 2016 9:00 AM ET



According to the National Association of Realtors, U.S. single-family home construction is currently lacking in 80 percent of measured metro areas despite steady job creation and the low activity is creating a housing shortage crisis that is curtailing affordability and threatening to hold back prospective buyers in many of the largest cities in the country.

NAR's study reviewed new home construction relative to job gains over a three-year period (2013-2015) in 171 metropolitan statistical areas (MSAs) throughout the U.S. to determine the markets with the greatest shortage of single-family housing starts. The findings reveal that single-family construction is startlingly underperforming in most of the U.S., with markets in the West making up half of the top ten areas with the largest deficit of newly built homes.

Lawrence Yun, NAR chief economist, says a large swath of the country continues to be plagued by inventory shortages exasperated by critically low homebuilding activity. "Inadequate single-family home construction 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," he said. "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."

NAR analyzed employment growth in relation to single-family housing starts in the three-year period from 2012 through 2015. Historically, the average ratio for the annual change in total jobs to permits is 1.6 for single-family homes. 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.

Using each metro area's jobs-to-permits ratio, NAR then calculated the amount of permits needed in each metro area to balance the ratio back to its historical average of 1.6. The higher the number of permits required, the more severe the shortage was in each market.

The top 10 metro areas with the biggest need for more single-family housing starts to get back to the historical average ratio are:

  • 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)

According to Yun, most of the metro areas with the biggest need for increased construction have strong appetites for buying, home-price growth that outpaces incomes and common instances where homes sell very quickly. Their healthy job markets continue to attract an influx of potential homeowners, only fueling the need for more housing.

"Although a few small cities with high ratios did not make the national rank for absolute permit shortages, their supply shortages are still meaningful at the local level and could become a bigger issue if job gains hold steady and the current pace of construction remains at its nearly non-existent level," adds Yun.

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 limited number of listings in several markets means that many available homes are receiving multiple offers and going under contract rather quickly," says NAR President Tom Salomone. "It's important in this situation to remain patient and not get caught up offering more than your budget allows".

Looking ahead, Yun says the good news is that the ratio in many areas slightly moved downward in 2015 compared to 2014 as builders started to respond accordingly to local supply shortages. 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.

"Recent NAR survey data show an overwhelming consumer preference towards single-family homes, including among millennials, who are increasingly buying them in suburban areas," concludes Yun. "A mix of new starter-homes for first-time buyers and larger homes for families looking to trade up is needed at this moment to ensure homeownership opportunities remain in reach to qualified prospective buyers at all ages and income levels."


Real Estate Listings Showcase

This website uses cookies to improve user experience. By using our website you consent in accordance with our Cookie Policy. Read More