Update: a more recent post (dated March 24) covers metro area employment growth and housing permits for the 2011 to 2016 period.
The Census Bureau recently released 2016 housing permit numbers for metro areas (click here), so I decided to compare employment growth to housing permits. The idea is to see how planned increases in housing supply match up (or don’t) with increases in employment and (implicitly) demand for housing.
The housing permits figures are more properly known as “new housing units authorized by building permits”, meaning that those housing units have been approved for construction, and not necessarily that construction has started. Though we do not have data for housing starts or completions by metro area (if you’re reading this and know of a source for metro area starts and completions, please let me know), at the national level housing permits and starts trend together very closely, followed with some lag by completions (see this FRED graph).
Looking at the 51 largest metro areas in the US (those that had populations of 1 million or more as of the 2010 census), we can compare nonfarm payroll (NFP) employment growth to the increase in housing units as gauged by permits. At the end of this post is a table of all 51 metro areas that can be sorted by any of the table’s columns. The right-most column is the ratio of housing units per increase in employment, referred to as “H/E ratio” for the rest of this post. For 2016 the average H/E ratio for the 51 largest metro areas was 0.48.
Caveat: the H/E ratio tells us only about the incremental supply of housing units to be added, and incremental demand as gauged by increase in employment, and does not tell us anything about the existing housing stock or the existing employment base. That is, it does not give us the entire picture of supply and demand for housing.
Among the large metro areas with the top 10 highest rates of employment growth in 2016, the H/E ratio ranges from a bit higher than the average (0.55 for Las Vegas and 0.53 for Denver), to a low of 0.17 for San Jose, California (which is also the lowest of all 51 large metro areas). Orlando, with the highest rate of employment growth among large metro areas in 2016, has an H/E ratio just below the average at 0.46.
Top 10 Large Metro Areas – 2016 Nonfarm Payroll Employment Growth Rate
Next, looking at the large metro areas with the 10 highest H/E ratios, we can see that all but one the top 10 have H/E ratio of 1.0 or higher (and Kansas City, in tenth place, is very close at 0.96). This list also illustrates the importance of the ‘E’ (employment growth) in the H/E ratio: The top two metro areas in this top 10 list, Oklahoma City and Houston, with H/E ratios of 13.54 and 3.02 respectively, saw 2016 employment growth significantly below the national average of 1.4%. If they had experienced employment growth at the same rate as the national average, Houston’s H/E ratio would be around 0.95, and Oklahoma City’s would be around 1.31. Having stated that, this list of metros with the top 10 H/E ratios are building housing (or at least planning to) at a rate roughly in line with employment growth, and thus should be alleviating the pressures causing housing crunches in many parts of the country.
Top 10 Large Metro Areas – 2016 H/E Ratio
If we look at the large metro areas with the 10 lowest H/E ratios we can see that all except one had employment growth that was close to or greater than the national average of 1.4% (that one exception is Cleveland, Ohio, which saw employment growth of 1.0% in 2016). A few of the metro areas on this list are most likely dealing with constraints on available land on which new housing can be built, such as Boston and San Jose. Detroit is known to have lots of housing stock that is vacant, so its low H/E ratio is not a surprise.
Bottom 10 Large Metro Areas – 2016 H/E Ratio
The housing permits data from the Census Bureau shows us single unit and multi-unit figures, and from that I calculated for each metro area the percentage of units that are multifamily. Sorting by this percentage reveals that California cities San Diego and Los Angeles are building a higher percentage of multifamily housing than most cities known for their density. San Diego tops the list with multifamily units at 78.1%, higher than that of New York City. We should keep in mind, though, that these figures are for entire metro areas, and that the greater NYC metro area includes many residential suburbs. Interestingly, two other California metro area have close the lowest multifamily percentages: Sacramento (14.8%) and Inland Empire (20.9%).
Top 10 Large Metro Areas – 2016 Multifamily Housing Unit Percentage (Permits)
As mentioned above, here is the sortable table of all 51 large metro areas:
2016 Employment Growth and Housing Permits for Large Metro Areas
|Metro Area||2016 NFP|
|% of units|
|Oklahoma City, OK||0.5||0.1%||6,770||25.6%||13.54|
|Kansas City, MO||10.5||1.0%||10,063||47.8%||0.96|
|New Orleans, LA||3.8||0.7%||2,949||16.8%||0.78|
|Las Vegas, NV||24.8||2.7%||13,577||35.1%||0.55|
|Minneapolis-St. Paul, MN||27.4||1.4%||14,133||45.1%||0.52|
|Dallas-Fort Worth, TX||113.5||3.3%||55,618||46.3%||0.49|
|San Antonio, TX||21.8||2.2%||9,785||34.2%||0.45|
|Salt Lake City, UT||23.7||3.4%||8,800||51.0%||0.37|
|San Diego, CA||28.9||2.0%||10,669||78.1%||0.37|
|Los Angeles, CA||90.0||1.5%||32,008||70.9%||0.36|
|New York, NY||120.6||1.3%||42,466||76.5%||0.35|
|San Francisco, CA||46.6||2.0%||14,989||67.1%||0.32|
|Inland Empire, CA||40.8||2.9%||10,019||20.9%||0.25|
|St. Louis, MO||33.6||2.5%||7,943||32.8%||0.24|
|San Jose, CA||36.0||3.4%||6,127||66.4%||0.17|
|Hampton Roads, VA||-2.8||-0.4%||6,375||37.1%|