This is a follow-up to my earlier post on 2016 Metro Area Employment Growth and Housing Permits. Reader “MetroGuy” suggested that I look at the H/E ratio (ratio of housing units per increase in employment) over a longer period. So this post evaluates the H/E ratio over the current expansion, from 2011 to 2016. Some may note that the recession ended in June 2009, but 2011 was the year that nonfarm payroll employment (NFP) growth finally really recovered.
As in that earlier post, this post will evaluate the H/E ratio for the 51 largest metro areas in the US (those that had populations of 1 million or more as of the 2010 census). The idea is to see how planned increases in housing supply as gauged by permits compare to increases in employment and (implicitly) demand for housing. 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 the 2011 to 2016 period the average H/E ratio for the 51 largest metro areas was 0.34.
To repeat the caveat in my earlier post: 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 NFP employment growth over the 2011 to 2016 period (shown as the compound annual growth rate, or CAGR, in the table) , the H/E ratio ranges from 0.67 for Raleigh, North Carolina to a low of 0.18 for San Jose, California. Austin, Texas, with the highest rate of employment growth over the 2011 to 2016 period, has an H/E ratio of 0.56, considerably above the average. We should also note the high rates of employment growth for these metro areas when compared to the national rate of employment growth over the same period, which was 1.8%. The top four metro areas (Austin, Texas; San Jose, California; Nashville, Tennessee; Orlando, Florida) saw employment growth at double the national rate or higher.
Top 10 Large Metro Areas – 2011 to 2016 NFP Employment Growth Rate
The 10 highest H/E ratios are well above the average of 0.34, with Hampton Roads, Virginia topping the list at 1.23. However, Hampton Roads’ high H/E ratio is due to a relatively low ‘E’ as its CAGR for NFP employment over the period was 0.7%. Pittsburgh, with the second highest H/E ratio has had an even lower rate of employment growth. If these two metro areas had employment growth at the national rate of 1.8%, Hampton Roads’ H/E ratio would be 0.47, and Pittsburgh’s would be 0.18.
Top 10 Large Metro Areas – 2011 to 2016 H/E Ratio
Moving to the metro areas with the 10 lowest H/E ratios, California cities make up half of the list. And those five California cities all had NFP employment growth above the national rate (1.8%) for the 2011 to 2016 period. By comparison, Chicago and Cleveland saw employment growth below the national rate. As noted in my earlier post, Detroit is known to have lots of vacant housing stock, so its low H/E ratio is not surprising.
Bottom 10 Large Metro Areas – 2011 to 2016 H/E Ratio
Looking at the percentage of multifamily units, the New York City metro area is, unsurprisingly, at the top of the list. What is surprising, though, is that California cities Los Angeles and San Jose have a higher multifamily percentage than cities known for the their density, such as San Francisco, Boston, and Seattle.
Top 10 Large Metro Areas – 2011- 2016 Multifamily Housing Unit Percentage (Permits)
As mentioned above, here is the sortable table of all 51 large metro areas:
2011 to 2016 Employment Growth and Housing Permits for Large Metro Areas
|Metro Area||2011-2016 NFP|
|% of units|
|New York, NY||932.6||1.7%||265,146||78.9%||0.28|
|San Jose, CA||219.0||3.8%||38,345||73.4%||0.18|
|Los Angeles, CA||667.0||2.0%||92,992||72.0%||0.14|
|San Diego, CA||184.0||2.3%||46,727||67.8%||0.25|
|San Francisco, CA||405.8||3.2%||64,244||65.6%||0.16|
|Dallas-Fort Worth, TX||624.0||3.2%||254,295||46.1%||0.41|
|Kansas City, MO||86.6||1.4%||43,024||44.5%||0.50|
|Minneapolis-St. Paul, MN||199.1||1.8%||65,901||42.5%||0.33|
|Salt Lake City, UT||115.7||3.0%||33,762||41.8%||0.29|
|Hampton Roads, VA||30.3||0.7%||37,131||39.7%||1.23|
|San Antonio, TX||155.5||2.8%||49,064||30.0%||0.32|
|St. Louis, MO||101.3||1.3%||38,083||29.4%||0.38|
|Las Vegas, NV||147.3||2.8%||55,313||26.9%||0.38|
|Inland Empire, CA||262.1||3.4%||50,144||25.6%||0.19|
|Oklahoma City, OK||55.3||1.5%||38,050||17.2%||0.69|
|New Orleans, LA||39.2||1.2%||15,672||14.6%||0.40|