When it comes to creating demand, jobs are the critical element. As the number of jobs increase, likewise does effective new demand for housing — with effective demand being not just the desire to purchase but also having the financial ability to do so.
In the U.S. today the new supply of housing is failing to meet growing demand. Take a look at the following graph showing the total number of new residential building permits issued in the U.S. in the latest 12-months (March 2018 through February 2019). Permits were issued to build 1,190,700 total new dwelling units. In that same period, the U.S. added 2.509 million net new jobs. This equates to 2.1 net new jobs per dwelling unit. In a normal market, there would be from 1.25 to 1.50 net new jobs per new dwelling, Hence, demand continues to outpace supply, which is why home values and rents continue to rise. Simple supply and demand factors still rule markets and prices.
The level of construction and job growth for the U.S. as a whole is not systemic. The number of new homes and apartments built in locales across the country varies dramatically. As usual, I invoke the TINSTAANREM axiom — There Is No Such Thing As A National Real Estate Market or a National Economy. The same is true when it comes to new construction. Some markets are hot and others not.
To identify the top Metropolitan Statistical Areas (MSAs) for new home construction in 2019, Realtor.com completed an analysis showing total residential building permits issued in 2018, median list price of homes available for sale and the percent change in residential permits from 2017 to 2018. In addition to the Realtor.com inputs, also added to the following table were the latest job growth numbers for the 12-months ending February 2019 and corresponding percentage gain in jobs. These top-10 cites were ranked on the total number of permits issued in 2018. Just three of the top-10 MSAs showed a decline in residential building permits from 2017 to 2018: New York-Newark-Jersey City, Los Angeles-Long Beach-Anaheim and Washington, DC-Arlington-Alexandria. Note that each of these three also posted the lowest job gain percentages in the group.
Just like the stock market, however, past performance does not guaranty future performance. Job growth, however, is a likely indicator. The following table shows the top 30 MSAs and Divisions ranked on the total number of net new jobs created in the past 12-months. There is some overlap across these, for example, with parts of New York duplicated in three of the top-four job creating locales. While I do not anticipate that each and every one of the top-10 construction markets in 2018 will replicate again in 2019, I do believe that the top-10 for 2019 are all included in the following table.
Jobs are everything when it comes to the effective demand for housing – and that will not change.