Residential construction is in major flux nationwide. After a major period of “boom” for contractors — with especially strong growth in residential construction over the past year — construction is seeing a major shift.
According to US Census Bureau estimates, certain areas — especially in Southeastern and Southwestern states — are seeing huge population growth and driving high levels of new construction. This is especially true when it comes to single-family homes, as the trend of people are potentially looking to escape dense urban areas amidst the ongoing effects of the COVID-19 pandemic and a changing job landscape.
It’s worth noting that overall, demand is starting to fall in the residential building market. The US Department of Commerce reported that the annualized number of housing permits fell to a five-month low of 1.8 million in April 2022, with housing starts at a surprisingly low level of 1.7 million — both statistics which continued to drop in May 2022 by 7 percent and 14.4 percent, respectively.
Additionally, the chaos of the supply chain has heavily contributed to struggles in the housing market. Alexander Lin, Vice President of Global Research for Bank of America, noted that homes under construction in 2021 exceeded the number of homes built for the first time in history, adding that “builders have been bogged down,” contributing to low levels of new residential construction permits.
Sun Belt boom: Top 5 cities for new residential construction
Despite the drop in residential construction numbers nationwide, the “boom” continues in multiple cities. There’s still a huge need for housing, as Redfin Chief Economist Daryl Fairweather noted that the country is still “roughly 4 million houses short of meeting homebuyer and renter demand.”
This has become particularly true in the “Sun Belt” region, which stretches throughout the Southeastern and Southwestern United States.
“Rapidly rising home prices in the Sun Belt highlights the need for more homes,” added Redfin Deputy Chief Economist Taylor Marr. “The hope for buyers is that building new homes will tame price growth so that housing remains more affordable than pricy coastal areas, especially with mortgage rates higher than they have been in recent years.”
Here are five of the top cities for residential construction in the coming year.
1. Austin, Texas
They say everything’s bigger in Texas, and it looks like housing growth is no exception. According to the US Census Bureau’s 2020 Building Permits Survey, this has been a case of longer-term growth for the city: New residential construction has seen a +20.6% growth in value since 2019, alongside a median sale price change of 19% year-over-year from April 2021 to April 2022.
That’s not all: Redfin’s data has Austin leading all major metropolitan areas in building permits for both single-family units (31.1) and multi-family units (26.1) per 10,000 people.
2. Raleigh, North Carolina
Raleigh is seeing fairly significant growth in its single-family housing units: 30.7 per 10,000 people, ranking it 2nd in the nation. Its housing price appreciation year-to-year and new construction share of sales paint a more detailed picture of its sudden growth, as it ranks 3rd and 2nd for each respectively, according to AEI Housing Center.
3. Jacksonville, Florida
With 29.2 single-family building permits per 10,000 people and 19.9 multi-family building permits per 10,000 people during Q1 of 2022, Jacksonville is establishing itself as a major force for new growth in the country’s housing market. The AEI Housing Center data shows that housing price appreciation has grown significantly, with its 28.5% growth in housing price appreciation year-to-year, ranking Jax #7 among national metro areas.
4. Nashville, Tennessee
Nashville has become a major presence in construction of single-family residences, with its 26.6 new permits per 10,000 people during Q1 of 2022 ranking 4th in the nation’s major metro areas. Crucially, though, the area has made significant gains in its rankings year-to-year, and it places 6th nationwide in new construction share of sales despite its population share.
5. Phoenix, Arizona
Phoenix is seeing a solid level of growth in housing across the board — the city ranks 6th in single-family unit building permits with 22.7 per 10,000 people in Q1 of 2022, according to Redfin — but high property values may be indicative of just how much demand is booming in the desert in 2022. The area’s house price appreciation from 2021 to 2022 ranks 7th in the nation among major metro areas, but it ranks 1st in cumulative house price appreciation from 2012 to 2022.
Major metro exodus: 5 cities with slowing residential construction
Though it’s not the case nationwide, “the party is over” for the formerly booming market in some parts of the country, according to Pantheon Macro chief economist Ian Shepherdson.
These factors may leave contractors less bogged down in the immediate future — but where is residential construction dropping? Perhaps surprisingly, it looks like it’s happening in some of the largest cities in the country.
1. New York, New York
While remaining the most populous city in the United States, New York’s housing market is struggling, and new housing construction is stalling. According to data from the AEI Housing Center, New York ranks 55th out of 60 metro areas in year-to-year house price appreciation — and has the most existing housing inventory that has yet to be sold out of all measured metro areas, perhaps pointing to why new single-family building permits in the metro (1.9 per 10,000 people) rank among the lowest in the nation.
2. Buffalo, New York
Even as the city attempts to build up the metro area through major projects — like the new Buffalo Bills stadium in Orchard Park — Buffalo is pumping the brakes on residential construction. Among major metro areas, Buffalo has the third-lowest rate of single-family building permits per 10,000 residents (2.1) while also being in the bottom 10 of new multi-family building permits (1 per 10,000).
3. Chicago, Illinois
Another major metro surprise: Chicago’s housing prices are dropping. The city ranks 54th in house price appreciation from 2021 to 2022, and 50th in the same data from 2012 to 2022. However, its existing supply remains high (6th in the nation) — indicating that the incentive for new construction may be dropping.
4. San Francisco, California
With a low level of single-family housing permits (2.3 per 10,000 people, ranking 4th-lowest among major metros according to Redfin), new construction shares of sales are also making a major impact on the housing market in San Francisco. As per AEI Housing Center, newly-constructed single-family homes are selling at a level that’s quite low in comparison to other major metro areas (46th out of 60), and the contribution of new construction to the existing housing stock in the metro area from 2013 to 2022 ranks an even lower 51 out of 60.
5. Los Angeles, California
Though it’s one of the nation’s largest areas, new housing construction has dropped to surprisingly low levels in Los Angeles during 2022. Its level of new multi-family housing permits (2.5 per 10,000 residents) ranks below much less populous areas such as Birmingham, AL and Virginia Beach, VA, and its rate of single-family housing permits is tied for 6th-lowest in the country.