On today’s show we’re talking about one of the other impacts of the 2008 recession. A decade later we are seeing a significant difference between the number of single family homes being built versus multi-family.
Multi-family is growing in share of new permits across the nation. But in select markets that already had a substantial footprint of multi-family, that growth has accelerated.
So let’s go back to 2008. As the national housing market collapsed amidst the subprime mortgage crisis, new construction ground to a halt, with building permit issuance bottoming out at the lowest level ever recorded in 2009. At the peak, there were nearly 1.7M single family homes permitted in 2005. By 2011, that number had dropped to 418,000. If you were working in single family home construction 75% of the nation’s business evaporated. No surprise there were many business failures in that industry.
In the recovery years that followed, multi-family housing construction rebounded fairly quickly, driven by a trend toward urbanization that increased demand for housing in and around city centers. The number of multi-family units permitted surpassed its pre-recession peak in 2015 and has since maintained that pace.
In a balanced market, a new housing unit should be built for every two new jobs that the economy adds. Markets that add more than two jobs-per-permit are considered to be undersupplied.
In Philadelphia, pre melt-down, the city was permitting about 15% of all units in the multi-family category. In the past decade, more than 45% of all units are multi-family. That statistic mirrors what I’m seeing on the ground in Philadelphia as well. Philly is one of the few coastal markets that is actually balanced. The job growth and housing growth have been pretty well balanced.
Since 2008, the San Francisco Bay Area has added 3.45 jobs for every new housing unit permitted, more than any other large metro in the nation. Furthermore, when we zoom in to the county level, we find that this housing is not being built in the same locations where jobs are being created.
In fact, many smaller metros throughout the country are actually building more new housing than needed based on local job growth. As the knowledge jobs of the modern economy cluster in a shrinking set of “superstar cities,” job growth has lagged in many other parts of the country. In these regions, it seems that struggles with housing affordability may have more to do with household income than with housing supply.
Even some major cities like Dallas, Charlotte, and Atlanta and Phoenix are adding enough units according to employment metrics. This analysis of course neglects migration due to retirement.
Pay close attention to permit activity. That will give you visibility of the market conditions 2-3 years from now when those units are in the market.
