Too much growth?
Several U.S. metropolitan areas are having economic booms with a lot of job growth. But new home construction can’t keep up with job growth.
That lack of construction is leading to housing shortages and skyrocketing prices, according to research by the National Association of Realtors (NAR).
Did a little bit of math
Economists at NAR have calculated the ratio of new jobs to new homes by looking at job data and the number of permits to build new single-family homes issued in the largest 100 U.S. metropolitan areas in 2016. They then compared this ratio to the national average to identify cities in which job growth is outpacing new home construction.
The national average ratio of jobs to new homes is 3.8.
In other words, for about every four new jobs created, one new single-family home is built. The majority of the nation’s largest cities, 65 percent to be precise, have a ratio below the national average. But in some large cities like San Francisco and Houston, that ratio is much higher.
Numbers don’t add up
For example, in Houston, 307,500 new jobs have been added, but permits have been issued to build only 173,638 new single-family homes. In the past five years, San Francisco has become home to 345,700 new jobs, but there have only been 20,241 new houses built. This high ratio between demand and supply has led to massive increases in home prices; in Houston prices have jumped 32 percent; in San Francisco, 54 percent.
Besides the fact that not enough new homes are being built, inventory of existing homes is also low.
Contractors say that they are receiving fewer permits, and that construction has become more expensive, largely due to a shortage of labor. Apparently, the job growth in these cities does not include an influx of construction workers. Builders say they are having to pay higher wages, leading to increased home prices.
Other high ratios
Other cities with a high ratio of job growth to new housing include Boston, Chicago, Denver, Grand Rapids, Hartford, Los Angeles, Miami, New York, San Diego, and San Jose.