New Home Construction Needed to Match Job Creation



According to a new analysis by the National Association of Realtors, new home construction activity is currently insufficient in most of the U.S., and some states could face persistent housing shortages and affordability issues unless housing starts increase to match up with local job creation.

The labor market, which is a key to overall economic health, has recovered all of the eight million jobs lost since the recession. NAR measured whether new home construction has kept up with job creation to determine the impact of construction on housing supply. The findings reveal that new home construction is underperforming in 32 states and the District of Columbia.

Lawrence Yun, NAR chief economist, says there’s a strong relationship between new jobs and an increase in demand for housing. “Historically, there’s one new home construction for every one-and-a-half new jobs,” he said. “Our analysis found that a majority of states are constructing too few homes in relation to local job market conditions. This lack of construction has hamstrung supply and slowed home sales.”

NAR analyzed jobs created in every state and the District of Columbia over a three-year period ending in the first quarter of 2014 relative to new single-family housing starts over the same period. Indicating lagging new home construction, 33 states (including the District of Columbia) have a ratio greater than 1.5 – the long-term average.

The disparity was the greatest in Florida, Utah, California, Montana and Indiana, where job creation has been particularly strong. Yun cautions that these states could face persistent housing shortages and affordability issues unless housing starts increase to match local job gains.

“A persistent lag in new home construction will lead to faster home price growth, which will negatively impact housing affordability,” said Yun.

Link to full text of NAR news release, click here.


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