The housing bust brought construction nearly to a halt. Construction permits, starts, completions and new-home sales are now a small fraction of their high levels during the mid-2000’s boom. They’re now low even relative to their more “normal” pre-boom levels of the mid-1990’s and early-2000’s.
The construction slowdown means two things:
- First, it’s a no-confidence vote by builders, who won’t break ground until they’re sure that housing demand is awakening, existing housing inventories are shrinking and prices are stabilizing. New construction activity is a good cue to what’s going to happen in your local market: more new construction today will mean more inventory for buyers or renters — and more competition among sellers or landlords — in the near future.
- Second, the slowdown has slammed jobs in the construction sector, which account for 4.0-5.5 percent of all US jobs, depending on whether it’s a fat or lean year for construction, plus additional jobs in related industries. New construction puts more money in the hands of workers – and their incomes will kick-start spending that will boost demand for housing.
How far has construction activity fallen? New construction permits in the first three quarters of 2011 – January to September — are running at the same low annual pace as in 2009 and 2010, and less than a third of the levels of 2002-2006.
But housing markets are local, and new construction is no exception. Of course, larger metro areas will tend to have more permits for new housing construction just because they’re bigger, so let’s look at new units permitted from July to September 2011 per thousand existing housing units. The most construction-permitting activity, among large metros, is in Texas, which has had strong recent job growth and far-from-the-worst home price declines during the bust. Houston and Dallas top the list for new construction permits, and Austin, San Antonio and Fort Worth are also among the top twenty large metros. Construction is gearing up in Southern cities like Raleigh, CharlestonSC and Charlotte too, but not Florida: no metro in Florida or the other high-foreclosure states of California, Nevada or Arizona makes this list.
Top Metros by Construction Permitting Activity, Q3 2011
|Metro area||New units permitted per thousand existing units, 2011 Q3||Multifamily (5+ units) share of new permitted units|
|Houston-Sugar Land-Baytown, TX||3.68||27%|
|Omaha-Council Bluffs, NE-IA||2.96||39%|
|Austin-Round Rock-San Marcos, TX||2.81||20%|
|Salt Lake City, UT||2.64||32%|
|Charleston-North Charleston-Summerville, SC||2.59||8%|
|Charlotte-Gastonia-Rock Hill, NC-SC||2.53||23%|
|San Antonio-New Braunfels, TX||2.51||46%|
|Colorado Springs, CO||2.39||29%|
|Fort Worth-Arlington, TX||2.35||40%|
|Virginia Beach-Norfolk-Newport News, VA-NC||2.05||49%|
(Shown are the top 20 metros, ranked by new units permitted per thousand exist units, out of the 84 largest metro areas in the US. Source: Trulia analysis of Census construction permit data, available here.)
Houston, in fact, is almost back to normal construction permitting activity. Permits there in 2011 Q3 are only a little below Houston’s average rate for 1990-2010; same for Dallas, Omaha and San Antonio. Construction permitting was actually above the average historical 20-year rate in Honolulu and San Francisco – even though in San Francisco that historical average is pretty low to begin with: hills, regulation, and not much available land make building tricky in the Bay Area. That’s a huge difference from the national picture: for the US overall, permitting activity in 2011 Q3 is below half the 1990-2010 average rate.
Rising rents, lower rental vacancies and lower homeownership are all telling builders to focus on multi-family construction and take advantage of rental demand. Multifamily accounts for more than half of new construction activity in Dallas and Honolulu. But multi-family is only a sliver of the action in the Carolina metros of Raleigh, Charleston SC and Columbia SC, where almost all new construction is single-family homes, unlike in higher-density cities with bigger shares of renters.
At the other extreme, there’s almost no permitting activity in Detroit, Long Island NY, Orange County CA and Providence RI, where there’s fewer than 0.5 new permits per thousand existing units. In these places, construction is held back by slow-growing (Providence, Long Island) or declining (Detroit) populations or by already-high densities and building restrictions that leave fewer options for new construction (Orange County, CA). There, as well as inMilwaukee, Chicago, Miami and much of the rest of Florida and California, construction is slow relative to the overall housing stock and relative to normal levels.
Why are builders digging in some metros and sitting out in others? The best predictor of construction permitting activity is population growth, and Raleigh and Austin – where permitting is high – were among the fastest growing large metros over the past 10 years. Home price increases – or less horrific declines – and lower vacancy rates also signal to builders that demand is stirring; high vacancies and big price drops in Florida, the Southwest and inland California hold back construction there.