New home construction needs to match local job creation or states could face housing shortages and affordability issues, according to an analysis by the National Association of Realtors.
New home construction needs to match local job creation or states could face housing shortages and affordability issues, according to an analysis by the National Association of Realtors.
While the labor market has recovered the 8 million jobs lost during the recession, the NAR's analysis found that home construction is not keeping up with the average pace of one new home per 1.5 jobs created in 32 states. This lag in home construction will cause faster home price growth and negatively impact affordability, said NAR Chief Economist Lawrence Yun in a statement.
"Historically, there's one new home construction for every one-and-a-half new jobs," he said. "Our analysis found that a majority of states are constructing too few homes in relation to local job market conditions. This lack of construction has hamstrung supply and slowed home sales."
The states where the disparity was most apparent are Florida, Utah, California, Montana and Indiana, where job creation has bounced back rapidly.
The NAR analyzed jobs created in every state over a three-year period ending in the first quarter of 2014 relative to new single-family housing starts over the same period. A ratio greater than 1.5 indicated the state was lagging behind.
Homebuilders need to produce in the face of current challenges in the building market or face the consequences, Yun said.
"It's critical to increase housing starts in these states facing shortage conditions or else prospective buyers may struggle with options and affordability if income growth cannot compensate for rising home prices," Yun said.