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New home construction activity is currently insufficient in most of the United States and some states could face persistent housing shortages and affordability issues unless housing starts increase to match up with local job creation.

In a new analysis the National Association of Realtors measured whether new home construction has kept up with job creation to determine the impact of construction on housing supply.

It points out that the labor market, which is a key to overall economic health, has recovered all of the eight million jobs lost since the recession and 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. 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,’ he explained.

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 which is 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.

Additionally, real estate agents home price growth expectations in the first quarter of 2014 was generally strongest in states facing housing shortage conditions. Lack of inventory has pushed prices up and put pressure on affordability, especially for first time buyers.

‘Agents have an intuitive sense of how fast prices are likely to rise from on the field observations. Their price outlook largely shows gains to be the strongest in states with slow home construction in relation to job growth,’ Yun pointed out.

On the contrary, home price growth looks to be manageable in states with strong job gains and near commensurate increases in new home construction. Housing starts are seen as more than adequate to local job growth in Mississippi, Arkansas, Connecticut, Alabama and Vermont.

Inventory of homes sale and new construction drives supply. Although the number of existing homes for sale increased in April, it remains historically low, averaging six months or less for 20 consecutive months.

Looking ahead, Yun said that home builders will have to produce amidst the current challenges facing the building market. Limited access to credit for smaller builders, rising construction costs, concerns about the re-emergence of entry level consumers to the market in the face of student debt and a tight credit box, and the general decline in affordability and purchase power over the last year is causing hesitation among builders.

‘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,’ added Yun.

This article was republished with permission from Property Wire.