One key reason for rising housing costs is the lack of available inventory. And some cities need new stock more than others, according to a report from the National Association of Realtors (NAR), which says that 80 percent of U.S. metros do not have enough homes for buyers, despite steady job creation.
The report examines the amount of new-home construction relative to the number of new jobs added to 171 metro areas between 2013 and 2015. For four-fifths of metro areas, employment growth to single-family housing start ratios were higher than 1.6, which indicates that there’s inadequate new construction in most of the country. The average for the areas examined was 3.4.
NAR then took each area’s jobs-to-permits ratio and calculated the number of permits needed to get the ratio back down to 1.6. With 218,541 permits needed to attain a 1.6 ratio, New York City was found to be most starved for new construction. Dallas (132,482 permits required), San Francisco (127,412), and Miami (118,937) also needed more than 100,000 starts.
In descending order, Chicago, Atlanta, Seattle, San Jose, Calif., Denver, and San Diego all needed more than 50,000 starts. The crunch in these metros is compounded by strong job markets that attract more residents, and house values that are outpacing income growth.
NAR said that new building is starting to realign the out-of-whack ratios, but that issues with financing, permit delays, regulatory and labor costs, and shortages of skilled workers will prevent a rebound for at least a few more years.
“Recent NAR survey data show an overwhelming consumer preference toward single-family homes, including among millennials, who are increasingly buying them in suburban areas,” NAR chief economist Lawrence Yun said in a statement. “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.”
Pensacola, Fla., Columbia, S.C., and Virginia Beach, Va., are among the metros that have housing start rates adequate to match local job growth.