A new report finds that construction is failing to meet the explosive level of job growth in many areas throughout the country; though, what that means is up for debate.
Earlier this month, the Department of Labor released its monthly jobs report, finding that after years of battling increasingly unmanageable unemployment, U.S. employers added 217,000 jobs, bringing the nation’s total employment to 138.5 million – the highest it has ever been. Shortly thereafter, the National Association of Realtors released its own report tabulating the growth of construction over the last three years.
For more than a half century, homebuilders have kept the level of construction in line with job growth, building one single-family home for every 1.5 jobs created. However, according to NAR’s report, several states, including Florida, California, Utah and Michigan, have produced jobs in excess of that ratio.
Where is job growth out-pacing construction?
Michigan led the way in job creation, the Labor Department’s report confirms, but construction was unable to keep pace. According to NAR, 5.4 jobs were created for every one house built, and it’s a similar story in California and Utah, where the ratios reached 5.3 and 3.6, respectively.
NAR’s Chief Economist Lawrence Yun, commented on the growing disparities, saying continued job growth without similar rises in construction may create or further exacerbate housing shortages, adding:
- It’s likely the housing shortage in California will persist, which may add even more pressure to prices.
- In states like Florida and Utah, it’s possible that builders will quickly ramp up their construction levels, which could tame home-price growth relatively quickly.
Where does the blame belong?
In the wake of the two reports’ near simultaneous release, there has been somewhat of a debate as to the exact implications of the findings.
Yun, whose organization authored the report, argues for increases in construction relative to local job growth, which he believes could help reestablish the working dynamic of the last 50 years. David Crowe, the chief economist for the National Association of Home Builders, disagrees.
Crowe claims there are several key statistics that NAR leaves out of its report, such as apartments and condominiums. For instance, multifamily homes, which totaled 293,700 last year – the highest since 2005 – are being built at an extraordinary pace. Projections show multifamily home construction is on pace to reach 413,000 units this year.
Arguing Yun’s position to reestablish the old building ratio, Crowe points out that, according to NAHB, one home to every 1.5 jobs is no longer consistent with today’s market. He says a more apt ratio would be one home for every two to three jobs created, which would help states reach their ideal range.
NAHB admits that additional construction is needed in certain areas, and Crowe explains the reason may be because some builders are consciously focusing on higher-priced homes, which reduces volume while extending profit margins.
Moving forward into 2014, the market may provide further understanding as to the relationship between homebuilding and job growth, but in the meantime Crowe says both builders and consumers are remaining cautious.