The U.S. has recovered all of the eight million jobs lost during the recession, but home construction has not kept up with job creation. Some states could face severe housing shortages if new home construction continues to lag, according to an analysis by the National Association of REALTORS® (NAR).
Historically, the average pace has been one new home for every one-and-a-half new jobs, but the NAR analysis found majority of states are constructing too few homes in relation to local job market conditions. New home construction is underperforming in 32 states and the District of Columbia. The problem is greatest in Florida, Utah, California, Montana and Indiana, where job creation has been particularly strong. Housing starts are seen as more than adequate to local job growth in Mississippi, Arkansas, Connecticut, Alabama and Vermont.
NAR's chief economist Lawrence Yun said there is a strong relationship between new jobs and an increase in demand for housing. "This lack of construction has hamstrung supply and slowed home sales," said Yun. "A persistent lag in new home construction will lead to faster home price growth, which will negatively impact housing affordability."
REALTORS® say this is the case in Silicon Valley. "It's already happening here because of the fantastic job growth we're experiencing," said David Tonna, president of the Silicon Valley Association of REALTORS®. "There's such a high demand for homes, but we're in short supply. There's new construction going up, but perhaps not fast enough. Fewer homes for sale has led to higher prices and for those who can't buy, steeper rents."
Building permits for single-family homes are up slightly in California, but there is a substantial increase in multi-family housing units. According to the California Building Industry Association, there were 3,046 housing permits for single-family units in April, up a 5 percent from the previous month, and 2 percent higher than in April of 2013. Statewide multi-family housing units, with 6,326 permits, increased by 58 percent since March 2014 and by 43 percent since last April.
While noting builders are faced with obstacles like rising construction costs, limited access to credit for smaller builders, and uncertainty regarding consumers currently struggling with a high debt load and tight credit, Yun said the lack of home construction needs to be addressed.
"It's critical to increase housing starts in these states facing shortage conditions or else prospective buyers may struggle with options and affordability if income growth cannot compensate for rising home prices," said Yun.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.