Together, just three Texas markets – Dallas, Houston, and Austin – are on pace to build nearly 130,000 new homes in 2017 – an amount that would be more than 10% of all permits in the U.S., and nearly as much as 50 other large U.S. metros combined. Meanwhile, several markets in the Northeast will struggle to break ground on just 500 this year. Job, income, and home price growth separate those metros that are building more than their historical share from those that aren’t.
Homebuilding matters more than you might think. Not only are newly built homes a source of new home inventory as well as construction jobs, they also help increase existing inventory through a chain-reaction effect: buyers of new homes often sell their existing one, which frees up a home for someone else, who in turn decides to buy it and sell their home, which then becomes a home for a first-time homebuyer. In fact, last month we found that new homebuilding was the single best predictor of home inventory in the U.S.
So, if homebuilding can help ease housing shortages, why are some markets hot and others not? We dug into this question, and found that:
- Homebuilding activity varies widely among the largest metros. Dallas, Houston, and New York are each on pace to build more than 40,000 new homes each this year, while Worcester, Mass., New Haven, Conn., and Allentown, Pa., are pace to build less than 500 each.
- Markets that are building much more than their historical average are mostly in the South: Austin, Texas, Charleston, S.C., and Nashville, Tenn., are on track to finish 2017 having approved 107.7%, 72.8%, and 65.8% more residential construction than their historic average.
- Markets that are building much less than their historical average are mostly in the North: Worcester, Allentown, and New Haven are on track to finish 2017 having approved just 85.5%, 85%, and 80.8% fewer homes than their historic average.
- Strong job growth, increasing wages, and home value growth explain much of the difference between metros that are building more than their historical average and metros that aren’t.
We analyzed census data building permit data to analyze how housing metros are building, both in total and relative to their historical average (see methodology below for details). Of course, the historical level of construction ranges from a lot in places like Houston and Phoenix, to very little in places like San Francisco and Detroit, but we’re not only looking at how many new homes these metros will build this year, but how much each metro’s 2017 construction activity is above or below its own historical average. Here’s where homebuilding in America is booming and busting.