Are we entering a recession or is the recession canceled?
Americans are certainly grappling with raging inflation and a plummeting stock market.
Predictions of impending economic doom are widespread, including JPMorgan Chase CEO Jamie Dimon who warned Americans to prepare for an economic hurricane.
On the other hand, a surprisingly strong jobs report from the Bureau of Labor Statistics showed the U.S. added 372,000 jobs in June, significantly higher than the projected 250,000 and now all jobs lost during the pandemic have been recovered.
In light of the most recent financial crisis in 2008 – largely caused by a housing crisis – real estate metrics have more significance as an economic indicator than ever before.
While the economic future remains uncertain, and there are certainly countless other factors at play, the skyrocketing cost of real estate is an extremely troubling sign.
Home affordability has fallen to the lowest levels ever recorded after plummeting by 29% over the last year.
In addition to elevated prices and increasing mortgage interest rates, there’s another major factor that influences the health of the housing market — new residential construction. New construction is more likely to boom when the economy is soaring and may constrict during economic downturns.
In addition, the types of homes being built are important. Many advocates argue that single family units drive prices higher, while multi-family homes – such as apartments, condos, and townhomes – can make housing more affordable.
Considering the housing crisis led to the Great Recession, we conducted a study on the State of New Residential Construction in America. We analyzed 35 years of residential building permit data dating back to 1986 from the U.S. Census Bureau in every state across the country and the District of Columbia.
Here are a few key findings:
- New Residential Construction Rising: Permits to build new homes increased during COVID-19 and has increased every year since 2009 coming out of the Great Recession. Though it remains lower than it was before the financial crisis.
- 5 Hottest Housing Markets: Utah, Idaho, Florida, South Carolina, and Colorado are seeing the most new residential construction adjusted for population.
- 5 Coldest Housing Markets: Rhode Island, Connecticut, Illinois, New York, and West Virginia are seeing the least new residential construction adjusted for population.
- Construction of Multi-Family Units are Rising: Single family units made up 83.2% of new construction 30 years ago in 1992. Last year, it made up 64.2%.
NEW RESIDENTIAL BUILDS IN AMERICA SINCE 1986
Permits to build new homes increased during COVID-19 and has increased every year since 2009. Though it remains lower than it was before the financial crisis.
Before the Great Recession, from 1986-2007, the U.S. averaged 5.6 new residential building permits per 1,000 people.
At its height in 2005, 2.2 million residential building permits were issued and that number plummeted to 580,000 in 2009, marking a seismic 73 percent decline.
Every year since 2009, new residential construction in America has increased. Last year it rose to 5.2 permits per 100,000 Americans, though still shy of pre Great Recession levels.
New residential construction building permits issued per 1,000 Americans by year
SOURCE: U.S. Census Bureau
HOTTEST HOUSING MARKETS FOR NEW RESIDENTIAL CONSTRUCTION
Whether it was remote work offering people more choice where to live, or people seeking states with more outdoor activities, better weather or lower taxes, COVID-19 has changed the housing market including where people are choosing to build new homes.
This hot construction rate in Utah and Idaho, as well as many other Western states is likely related to enjoying rapid population growth. Utah and Idaho are first and second, respectively, in percentage growth between 2010 and 2020.
New residential construction building permits issued per 1,000 residents by state, 2021
SOURCE: U.S. Census Bureau
SINGLE FAMILY UNITS DECLINING, MULTI-FAMILY UNITS RISING
To create more affordable housing, advocates call for an increase in construction of multifamily residential projects. In some locations, such projects are outright prohibited, while in others, local ordinances are so restrictive as to effectively ban new residential construction for anything but single-family housing.
Historically, single-unit construction has been the most common type of residential construction in the U.S., accounting for an average of about three-quarters of all newly approved residential building permits in the U.S. between 1986 and 2009.
However, this ratio is falling, hitting a three-decade low in 2015, when single-unit permits accounted for about 59 percent — down from a high of 83 percent in 1992.
1-unit building permits as percentage of all new residential building permits by year
SOURCE: U.S. Census Bureau
SINGLE-FAMILY RESIDENTIAL CONSTRUCTION BY STATE
The dominance of single-family residential construction varies considerably across the country, as does the rate of building permits overall. D.C. has the lowest rate (about 8 percent), which is to be expected, given that it’s a city. New York has the second-lowest rate, likely due to the presence of the nation’s largest metropolitan area.
Contrast these rates with states like Mississippi and Oklahoma, where more than 90 percent of all new residential permits are for single-unit housing.
1-unit building permits as percentage of all new residential building permits by state, 2021
SOURCE: U.S. Census Bureau
CONCLUSION:
America, and the global economy, is in a precarious position. In light of the most recent financial tragedy in 2008, the housing market has more significance as an economic indicator than ever before. Whether or not we enter a full blown recession remains to be seen, and there are myriad larger factors at play, but some findings in this study revealed positive news. New homes continue to be built – which can be a sign of economic strength – and more of those new builds are multi-family homes as opposed to single family homes, which conventional wisdom suggests will help make housing more affordable for everyone.
METHODOLOGY
The data we used for this analysis came from national statistics and state-by-state numbers published annually, quarterly, and monthly by the U.S. Census Bureau. The bureau’s Building Permits Survey measures construction permits approved by local jurisdictions in each state.