Even though construction employment is rebounding more slowly than construction activity, there are more construction jobs per unit under construction than normal
In the monthly employment report for March, the Bureau of Labor Statistics (BLS) reported this morning that residential construction jobs increased 3.8% year-over-year. (We include both “residential building construction” and “residential specialty trade contractors” – here’s why.) That’s faster than the overall employment increase of 1.4% – reflecting that housing is now a critical part of the economic recovery.
A quick glance suggests that construction jobs aren’t keeping up with construction activity. Even though residential construction employment growth is outpacing overall employment growth, it’s puny relative to the rebound in construction activity, measured in housing units or dollars:
The Housing Recovery: Jobs, Housing Units, and Dollar Value
% Change since bottom
|Residential construction jobs||
|New housing units under construction||
|Dollar value of residential construction
(new construction only)
|Dollar value of residential construction
(new construction plus improvements)
|Note: Jobs data through March 2013, from BLS; units under construction and dollar values through February 2013, from Census. Dollar values are adjusted for inflation and reflect the cost of labor, materials, contractor’s profit, and more. “Bottom” was January 2011 for jobs; Aug 2011 for units; May 2011 for dollar value (new only); and July 2011 for dollar value (new plus improvements).|
New home construction starts in 2012 reached their highest level since 2008, but remain way below long-term normal levels. Raleigh, Austin, and Houston led the U.S. in construction activity.
This morning the Census reported that there were 780 thousand new housing starts in 2012, a 28% increase over 2011 and the highest level since 2008. (Census also reported that the seasonally adjusted annualized rate for December was 954 thousand.) However, construction activity is still far below normal levels in most of the country. Here are the key takeaways about 2012’s construction rebound:
Originally published in The Atlantic Cities on May 4, 2012.
Construction activity came to a near-halt after the housing bubble burst. The number of new residential units authorized in 2009, 2010, and 2011 was less than one-third of the level during the boom. In 2011, construction activity picked up slightly from 2009 and 2010, as the housing recovery began, with permits for new multifamily buildings leading the construction recovery. Multifamily construction has increased because rental demand rose during the recession as people chose not to – or were unable to – buy or keep their homes. Just this past year, rents rose 5.6 percent nationally according to the Trulia Rent Monitor, and that encourages builders to construct new multifamily buildings.
As always, housing is local. Construction is gearing up in some markets and remains dormant in others. These patterns are critical for understanding the future of cities, for two reasons.
First: construction activity is a bet on future growth. Developers will build only in areas where they expect housing demand in the future. Of course they can bet wrong, and that’s what happened during the housing bubble; construction in many metros far exceeded housing demand, and lots of newly built homes were (and still are) vacant. Still, construction is a clear signal of builder confidence in an area.
Second: construction shapes urban form. Housing units live a long time and are rarely destroyed, so new construction has a long-term impact on density and sprawl. The primary tool that officials have to affect density, sprawl and urban form is deciding what type of new construction, if any, to allow in different communities.
What do construction patterns say about the future of cities in America? This week the U.S. Census Bureau released data on construction permits issued by localities in 2011, including whether those permits were for single-family homes or units in multi-family buildings.
Metros with the Most Construction Permits
|Metro||Construction permits, 2011||Percent of permitted units in
multi-family buildings, 2011
|Houston, TX||31,271||27 percent|
|Dallas, TX||18,686||49 percent|
|Washington, DC||16,501||51 percent|
|New York, NY||13,973||91 percent|
|Austin, TX||10,239||39 percent|
|Los Angeles, CA||9,895||77 percent|
|Phoenix, AZ||9,081||20 percent|
|Seattle, WA||8,664||47 percent|
|Atlanta, GA||8,634||28 percent|
|San Antonio, TX||7,127||38 percent|
More permits were issued in the Houston metro area than in any other metro, by far. Four of the top ten metros were in Texas. But this list is dominated by large metro areas, and we’d expect bigger areas to have more construction activity. Looking instead at the number of permits issued per 1,000 existing housing units shows the impact of construction on metro areas relative to their size. Here are the top and bottom ten metro areas by construction activity, among the largest 100 metro areas:
Most Construction Activity
|Metro||Construction permits per 1000
housing units, 2011
|El Paso, TX||15.36|
|Little Rock, AR||10.53|
|Baton Rouge, LA||9.51|
Least Construction Activity
|Metro||Construction permits per 1000
housing units, 2011
|Long Island, NY||1.65|
|New Haven, CT||1.90|
|Ventura County, CA||2.02|
The rate of construction is highest in metros within Texas and the Carolinas and lowest in the Northeast and Midwest. The map shows the pattern across America. The rate of construction is higher across the Texas, the mid-South and Mountain states, but lower in New England, the Great Lakes, South Florida and most of coastal California.
Two factors stand out to explain which areas have the most construction. The first is long-term employment growth, which is the best guide to future housing demand. The second is smaller recent price declines: metros where prices fell less during the bust had less overbuilding and are therefore ready to absorb new housing. Among the ten metros with the highest rate of construction, all had above-average job growth over the past ten years, and none had experienced the huge home price declines that the hardest-hit areas did during the crash. Builders and developers are betting on metros with solid histories of job growth that escaped the worst of the housing crisis.
What does construction activity mean for urban form? The mix of single-family versus multi-family permits is a strong guide. Multifamily construction is higher density than single-family construction, and single-family construction is more sprawling. For the U.S. overall, one-third of the construction permits in 2011 were for multi-family units. But the multi-family share ranged widely among the largest metros, from 91 percent of permits issues in the New York metro and 86 percent in San Francisco all the way down to 2 percent in Dayton, OH, and 3 percent in Palm Bay-Melbourne-Titusville, FL. In Houston, where more permits were issued in 2011 than anywhere else, just 27 percent were for multi-family units. But not all of Texas is sprawling: in Dallas, 49 percent of permits were in multi-family units, well above the national average. In Los Angeles – which used to be the poster-child for sprawl – 77 percent of new permits were for multifamily units. Among the top permit-issuing places, Phoenix has the lowest share of multi-family permits at 20 percent, along with Houston (27 percent) and Atlanta (28 percent).
The future of sprawl, therefore, is not California. Houston, Phoenix, and Atlanta are America’s current capitals of low-density construction. Builders are betting on future growth in the South, in Texas, and in the Southwest, and they’re building single-family homes to meet that demand.
Nationally construction is looking up -- but some places are hot while others are not.
Things keep looking up for the construction industry. New construction starts in January were 10% higher than one year ago. Confidence among builders jumped this month to the highest level in four years, even though it’s way below where it was before and during the housing boom. And construction jobs are on the rise too, growing faster than the U.S. economy overall.
But housing markets are local. In some cities you hear the sweet sounds of hammers and backhoes, but others cities are silent. Building-permit data from the last quarter of 2011 – the most recent available – show where construction is hot and where it’s not. Where it’s hot, new homes will add to the existing inventory, giving buyers more choices. Where it’s not, buyers will have to look at existing homes, and construction workers will have to hope for better news next quarter. Here are the winners and losers in new construction:
New construction continues to be down nationally, but looking at the Q3 Census data on permitting activity, there are actually pockets across the country where new homes are being built as we speak.
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.