New Jobs Outpace New Homes
Due to favorable economic conditions during the past decade, there has been strong job growth (except during the worst months of the pandemic) which continues until the present. However, homebuilding has not kept pace in many of the nation’s big metropolitan areas. Heavily due to local government restrictions, many of the nation’s most productive and successful cities and suburbs failed to meet the increased demand for housing.
The population of those metro areas are more educated than the country as a whole on average, and as a result have higher incomes on average. But the most important element behind the housing shortage is workers without a college degree flocking to these cities, as the salaries in those areas paid considerably more for the less educated than the towns and rural areas they left behind. As a result, there has been a surge of folks moving to those metro areas. New home construction has failed to meet demand.
When high wage metros fail to meet the demand for moderately priced housing, the local and national economies grow at a slower pace. Some growing metros that succeeded in matching job and housing growth often relied on building single-family homes on undeveloped land. But this sprawl leads to heavy traffic congestion and air pollution. As the affordable housing is built further and further from the urban core (where the jobs are) future growth becomes threatened. Also, as the distance of housing from job concentrations grows, it becomes more expensive to get to work (price of gas, wear and tear on the car, etc.). The most successful metros achieved both density and supply. These areas are well positioned, economically, for the future.
Additionally, living in or near where the jobs are, makes it far easier to use public transportation (another money saver which also causes far less air pollution). An important step for local governments to take is to change some of the zoning restrictions to permit homebuilding in areas that are currently off limits for builders. Hence, the mismatch between jobs and housing is worst in areas where restrictive regulations exist for housing construction. When these restrictive regulations meet strong labor demand, tight housing markets are sure to follow. This pattern leads to more expensive housing (supply and demand) than it would be in less regulated areas. As a result, people who can’t afford the housing prices are forced to move further away from where their jobs are.
Recent data are available on the place of birth of state residents. Interestingly, the states where the overwhelming majority of the population were born in the state where they live (for example: NY, NJ, Massachusetts), homebuilding has been the slowest.
Florida (42%) and Arizona (46%) are the two states with the most residents who were born in another state.
With that being said, it is still a struggle for Florida to meet housing demand, as the state has become a Mecca for out-of-staters seeking employment in the Sunshine’s state’s vibrant economy. Even with solid home construction, the state is having trouble meeting the strong demand. This inevitably leads to higher home prices.
Between 2010 and the first quarter of 2022, Texas and Florida, although they’re struggling to meet housing demand, filed the most homebuilding permits, followed by California. This is extremely impressive (for Texas and Florida) when we consider that the population of California is 39.35 million and the populations of Texas and Florida is 28.64 and 21.22 respectively.
As those fast-growing states keep adding population, the local governments should step in and decrease regulation and ease zoning laws to allow more homebuilding. Finally, building more homes lends itself to greater affordability.