Wanna-be homebuyers and renters all across the nation are experiencing bidding wars for not enough homes and fierce competition for not enough leases. From small inland cities to coastal metropolises, the U.S. needs new housing.
According to Lawrence Yun, chief economist with the National Association of Realtors (NAR), there is now one new housing unit for every 12 – 16 jobs. “There were fewer new units added in the 10 years ending in 2016 than any other decade since such figures have been compiled…it’s not just explosive coastal markets anymore, its Louisville and Omaha…Everyone is frustrated by tight inventory and a lack of options.”
Yun recently released a study about US cities where it’s too expensive to build. California as a state is particularly difficult…6 of its major metro areas are among those with the slowest pace of home building as compared with job growth. San Francisco, for example, is the cruelest. For every 373,000 new jobs in the last five years, there have been only 58,000 permits for new units of new houses approved. San Jose, Sacramento, Los Angeles, and San Diego are not far behind.
Houston, on the other hand, is not nearly as “cruel.” For the 346,000 new jobs in Houston, there have been 260,000 new dwellings permitted in this same five year period. In other words, Houston has 1 new permit for every 1.3 new jobs…more than 5 times that of San Francisco.
The reasons for this discrepancy nationwide are multiple: there is a mismatch in where people want to live and the places where land is available to build; there is either no skilled labor available or the labor costs are too high; and, zoning rules are preventing greater population density. Add regulatory costs into zoning rules and you come up with another factor that renders new building too expensive…NAR estimates that nationwide regulatory costs amount to 24% of building costs and that, in some places such as San Diego, regulatory costs amount to 40% of building costs!
Yun says of the current situation, “Either builders have to build more units or real estate investors have to unload the homes they own onto the market.”
Yun’s study regarding estimates of 2017-2030 demand for new apartment buildings with at least five units per building in the following cities:
New York 275,000
Los Angeles 150,000
Washington DC 130,000