The current housing market is a mixed bag, and residential construction trends add to the confusion. Trapped in the financial rollercoaster that is gripping the nation, both homeowners and potential homebuyers are experiencing decision paralysis.
With the barrage of news about skyrocketing and plunging home prices, inflation, rising and falling mortgage rates, buyer’s markets and seller’s markets, and the most recent banking debacle, it’s becoming increasingly difficult to see the facts and make any decision whatsoever about buying and selling.
So, to get a clearer picture regarding the macro-trends in home building, Point2 analysts worked with U.S. Census Bureau and BLS historical data to compile this report, which details the evolution of housing construction and construction employment trends for the last decade. We gathered and analyzed permits and new construction data, as well as employment, income and business data at the national, state and metro levels, for all 384 existing U.S. metros.
The report is accompanied by this extensive resource page highlighting the Y-o-Y changes in residential construction over the last decade, in all the states and 384 U.S. metros.
Here are the main takeaways:
- By 2021, the number of residential permits issued at the national level had more than doubled compared to 2012, but it decreased slightly in 2022. The total number of housing starts followed the same trajectory.
- However, the number of completed units has been on an uninterrupted upward path since 2012.
- With the exception of a small dip in 2020, the total number of employees working in construction has been increasing for the last decade, along with their average income. The number of construction-related businesses has been on the rise as well.
- Texas, Florida and California were the top three states with the highest number of permits issued: Together, they made up more than one third of the total number of permits issued in the U.S. in 2022. What’s more, these states have been dominating the rankings in the last decade.
- At the metro level, Dallas, Houston and New York stole the show, with the most permits issued in 2022 out of all of the 384 metros included in the analysis.
- The New York, Los Angeles and Houston metros have the highest numbers of construction employees, but metros like Lake Charles, LA; St. George, UT; Cape Coral-Fort Myers, FL; Naples-Marco Island, FL; Baton Rouge, LA; Greeley, CO; Provo-Orem, UT and The Villages, FL had the highest shares of construction employees (all above 10%) out of the total number of employed people in the metro.
In the Last Decade, an Average of 2,971 Homes Were Completed Every Day in the U.S.
- In 2012, nearly 830,000 permits were issued, amounting to a value of $140.5 billion. Then, by 2022, the number of permits had almost doubled, reaching 1.65 million, while their value climbed to $374 billion.
- From 2012 to 2022, an average of 2,971 homes were completed and 3,513 permits were issued on a daily basis.
- In 2014, the total number of permits issued at the national level crossed the 1-million mark and kept increasing until 2022, when the first drop was recorded.
- The drop in total permits recorded in 2022 was almost entirely due to the decrease in permits for single-family homes.
- Although the number of housing starts, like the number of permits dropped in 2022, the number of completed units continued its steady rise.
Despite a drop in the number of permits issued, 2022 was a strong year for home building. After being pummeled by the pandemic and its aftermath, home builders have proven just how adaptable and resilient they are.
As such, last year may have been a "stop and take stock" moment, the lower number of permits issued at the national level in 2022 indicating a recalibration of effort and resources.
To that end, completed units have continued to increase, despite the slowdown in permits and housing starts, as well as the many supply chain issues and price challenges.
However, this decade-long upward trajectory may begin to slow down in light of the most recent banking problems and the lending stress that they created. According to Axios, while higher interest rates are mainly affecting the commercial real estate sector for now, the ripples of higher borrowing costs might soon start affecting builders and housing construction as well:
"Meanwhile, it's not just offices at stake. A lending freeze is certain to impact the construction of badly needed apartment units, as scarce supply helps buttress nationwide rent prices, a key source of consumer inflation.
RentCafe found that "overall housing supply can't keep up with demand," especially with over 60% of apartment-dwellers renewing their leases and affordable units tougher to find."
Another significant finding was that the drop in the total number of permits was almost entirely due to the drop in the number of single-family home permits, whereas the number of permits for multifamily homes continued to rise. This could mean that rising building costs are forcing developers to focus more on multifamily projects, at the expense of single-family homes and duplexes.
Interestingly, the total value of permits issued for two- to four-unit homes actually increased, despite the drop in the number of permits issued. This could suggest that the building costs for this type of housing have indeed been going up, which may make them a more valuable investment in the long run compared to single-family homes or larger multifamily properties.
Square Footage of Average Home Decreases After 2015, Increases Slightly in 2021 & 2022
- With minor fluctuations, the average square footage of completed and started single-family homes increased until 2015, when it began decreasing.
- Also with some exceptions, the average square footage of completed and started units in buildings with 2 to 4 and 5 or more units reached a peak in 2016. After that point, they began decreasing steadily.
- Likely due to the pandemic and the need for more space that it brought about, the average square footage of single-family home starts in 2021 went up by quite a lot: Average floor space increased from 2,473 the previous year to 2,532 in 2021.
Although over the last decade the fluctuations in home size have been less significant, with the average hovering around 2,500 square feet, homes in the U.S. had much more humble beginnings. In the 1940's, the typical single-family home was just 909 square feet. By 2015, it reached an impressive 2,687 square feet, only to fall to 2,480 in 2020.
This was where the influence of the pandemic and buyers' need for more space became quite clear: In the space of just one year, started single-family homes jumped from an average of 2,473 square feet in 2020 to 2,532 square feet in 2021. It took one more year for this trend to become visible in completed single-family homes, which only added some space in 2022.
However, square footage varies considerably depending on the type of home a buyer chooses. Single-family homes, the heart of the American Dream, offer the most space. Duplexes, triplexes and quads are next in line when it comes to both space and privacy, while condos offer, on average, the least livable space. Their advantage, however, is that they're usually more affordable.
According to our analysis, the owner of the average single-family home enjoys twice as much space as owners and potential buyers of two-unit and multifamily homes could ever hope to have.
That said, now more than ever, square footage has become a matter of affordability. If the pandemic and the nation-sweeping work-from-home trend made buyers and owners alike focus on acquiring more space, inflation and historically high mortgage rates are now forcing builders and buyers to shift to condos and multifamily projects.
Employment Data Shows Number of Construction Employees & Construction Businesses on the Rise
- In 2012, there were 5.6 million construction employees, representing 4.24% of the entire workforce at the national level. That number climbed continuously, with only a minor, pandemic-induced dip in 2020.
- The average income for construction employees has been increasing steadily since 2012.
- One changing trend: Although construction income has been incrementally higher than the national average income, the gap seems to be closing.
- Construction-related businesses are booming: The total number of construction businesses has been increasing, with an especially significant jump in net numbers in the years immediately following the pandemic, 2021 and 2022.
With both permitting and housing starts remaining strong and completed homes on the rise, it's no wonder that the number of construction employees and construction-related businesses are increasing as well. What's more, incomes in the industry have been steadily going up for the past 10 years, and they show no signs of slowing yet.
Although the number of construction employees declined in 2020, it did so only marginally, and the share of construction employees out of the total labor force at the national level has been increasing slowly, but almost uninterruptedly since 2012.
However, the one metric where the effect of the pandemic was quite visible was the rate of unemployment in construction: This number was falling rapidly, from a high of 13.9% in 2012 to as low as 4.5% in 2019, the year preceding the pandemic. In 2020, the unemployment rate for construction workers shot back up, reaching 8.7%, even higher than the overall unemployment rate, which stopped at 8.1%, showing that the residential construction sector was one of the hardest hit domains of activity.
The good news is that, by 2022, demand had rebounded and the unemployment percentage fell back to its pre-pandemic level, settling at 4.6%.
And, no wonder: At the beginning of 2022, the backlog of construction projects, combined with a pick-up in permitting activity led to builders resuming their work in earnest. As a MarketWatch report emphasized:
"December’s [2021] surge in housing permits may be an outlier, but permitting activity has remained strong in recent months. That’s created a larger backlog of construction projects for home builders, as construction firms continue to grapple with shortages of both supplies and labor.
Indeed, the number of housing units that construction companies haven’t started work on despite having the authorization to begin building is up 44% from a year ago and rose on a monthly basis. That will give builders plenty of runway to continue construction work in 2022, which should infuse the housing market with much-needed inventory."
If the total number of construction employees fell slightly in 2020, the number of construction firms and businesses only experienced only a deceleration, but not a decrease in growth during the pandemic. In fact, by 2022, that number was close to 900,000, out of a total of 11.5 million businesses at the national level.
In 2022, Texas, Florida & California Issued the Most Permits; 17 States Issued Less Than 10,000 Permits
- With 593,800 permits, Texas, Florida and California made up more than one third of the total number of housing structures authorized in the U.S. in 2022.
- These states have been in the lead, in the same order, every year since 2012.
- The total number of permits issued in the other 47 states and Washington D.C. is 1,058,057.
- Six states recorded Y-o-Y increases in the number of permits issued above 10%: Hawaii, South Dakota, Georgia, New Mexico, Wyoming, Connecticut. Meanwhile, with a 62,55% jump, Washington D.C. is simply in a league of its own.
- Labor shortages, sky-rocketing costs and supply issues left their mark: In a staggering 32 states, the number of permits dropped compared to 2021.
Texas, Florida and California shared the podium: Together, they made up more than a third of the total number of permits issued in the U.S. in 2022. This situation hasn't changed since 2012, when the same three states occupied the first three positions, in the same order. The same goes for all the years of the last decade: Texas, Florida and California were always in the lead.
The same was true for the top three states with the fewest permits issued: The number of permits in Rhode Island, Alaska and Vermont was the smallest in 2012 and it hasn't changed that much in the past decade. Wyoming and New Hampshire sometimes made an appearance on this list, as well.
However, net numbers are not always the most telling, or the only relevant metric when analyzing housing construction. Alaska, Vermont and Rhode Island had the fewest permits also because they are among the top 10 states with the smallest populations. However, changes in the number of permits issued at state level could indicate important shifts in building and housing trends.
In 2022, Washington D.C. recorded the most spectacular Y-o-Y jump in authorizations. Multifamily buildings dominate here, with 7,228 more units receiving the green light last year. Permitting activity also rose more than 10% in six states: Hawaii; South Dakota; Georgia; New Mexico; Wyoming and Connecticut saw building permits rise between 11% and 26% Y-o-Y.
In an example of what goes up must come down, Pennsylvania recorded the sharpest drop in authorizations for building projects of the 50 states and Washington D.C. After a record 86.31% increase in permits in 2021, permitting activity in the state slowed significantly, falling almost 50% in 2022.
However, this drastic fluctuation was mostly due to the changes to real-estate taxes for residential projects, changes that were to be implemented after December 31, 2021. Consequently, developers hurried to have their permits approved before the end of the year, pushing up the number of permits in 2021 and sending permitting activity in 2022 into negative territory.
But, despite having the biggest drop in building authorizations, Pennsylvania was far from being the only state where permits decreased in 2022: Permits fell Y-o-Y in 31 other states, with 12 states seeing double-digit drops.
This could mean that builders and developers are slowing down, after pushing through all the rough conditions created by increasing material prices, higher building costs, labor issues and supply chain frustration. While demand was still high, all the effort was worth it. However, decreasing demand, brought about by higher mortgage rates, coupled with the financial pressure that began to be felt in Q1 of this year could send permitting activity down even further.
In 2022, Permitting Activity Increased in 22 Large Metros, Decreased in 34
- In 2022, both Dallas and Houston authorized more than 75,000 units, followed by the New York City metro, where nearly 60,000 permits were issued.
- Large metros: With an 80% increase, Honolulu, HI saw the biggest spike in number of permits issued in the metro, while Philadelphia, PA recorded the largest drop: In 2022, permits declined by 61.7%, after a record 124% increase in 2021.
- Medium metros: The number of issued permits increased in 17 metros, but decreased in the remaining 40 medium metro areas. Akron, OH led the way with the most significant increase, at 151.4%, while Huntsville, AL saw the steepest drop, nearly -35%.
- Small metros: Of the 271 small metros, permitting activity increased in only 104. Michigan City-La Porte, IN; Elizabethtown-Fort Knox, KY and Sherman-Denison, TX recorded the largest increases, while Wheeling, WV-OH tops the list of small metros with the biggest drops.
Texas, Arizona, Georgia and Florida topped the list when it came to permits for single-family homes. Metros from these states dominate the list of cities with the most permits issued for single-unit buildings. In lower-density states and metros, building single-family homes is still the norm. However, things could be changing, as the number of permits for single-family homes and 2- to 4-unit homes was down for the first time in a decade, while multifamily developments were on the rise.
It was more or less the same states that boasted the leading metros for multifamily projects, as well. At more than 44,000, New York has the absolute largest number of permits for multifamily buildings, but Dallas, TX; Houston, TX; Austin, TX; Washington, D.C. and Atlanta, GA all follow suit, each of them having issued more than 20,000 permits for 5+ developments.
However, not all metros were created equal. Metros with fewer residents, where demand is lower or is just starting to take off have seen a more reduced permitting activity. Although the pandemic has created some big shifts in mobility and home buying trends, developers still have some catching up to do.
Analyzing the number of permits issued by metro and their corresponding value, the list of metros included in each ranking differed slightly. This demonstrated that some metros favored single-family homes, which were more expensive to build, but also that building costs were much higher in certain states and metros.
What's more, with the most recent population shifts and changes in demand, home builders are now re-assessing their activity. While some metros recorded significant increases in permitting activity, factors that hamper home building, like increasing costs of material and labor, are piling up in many other metros and states, forcing developers to scale back.
With Pennsylvania recording the biggest drop in the number of permits issued in 2022, it makes sense that Philadelphia, the largest metro in the state, would top the infamous ranking, as well. However, this could be considered as more of an artificial decrease, resulting primarily from the change in taxes for the residential projects that began in January 2022, which forced many developers to rush to take care of permitting before that date. According to a report by The Economy League of Greater Philadelphia:
"In 2019, nearly 64,000 building permits were issued in the City of Philadelphia. [...] The pandemic slowed permitting and construction activity due to a combination of the Commonwealth of Pennsylvania’s mandatory construction halt in the spring of 2020, supply chain disruptions, and sharp increases in prices for construction materials. However, even with the overall decline in permitting and construction, 2020 and 2021 saw extremely high counts of new construction permits.
In fact, in 2020, 26.4 percent of permits were issued for new construction—the highest percentage in the previous six years. While this may reflect a final push from developers trying to acquire permits before the city’s expiration of the ten-year tax abatement, 2021 saw issuance of the second highest proportion of new construction permits in the previous six years, at 20.3 percent."
Larger metros, which are usually authorizing more permits and building more, can naturally have more significant ups and downs in permitting activity. However, it's the small metros where the biggest fluctuations can happen: Here, one multifamily residential project is enough to push permitting activity into the stratosphere or bring it down below sea level.
In the end, demand is just one of many factors dictating where the residential market is going, with home seekers and homebuyers having to take into consideration and balance even more aspects than before if they want to make the homeownership dreams come true.
Methodology
- For this study, we worked with historical data from the U.S. Census Bureau and the U.S. Bureau of Labor Statistics.
- We analyzed yearly data points, beginning with 2012 and ending with 2022, the year with the most recent available data.
- We looked at the number of permits issued and the value of permits issued by housing type, the number of completed units and started units, the average and median square footage of started and completed units, and employment data like the number of construction employees and their income, as well as the number of construction businesses, as defined by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics.
- We extracted data at the national, regional, state and metro levels, and included all 384 existing U.S. metros.
- We divided the metros into three categories, based on their population:
- Large metros are metros with a population higher than 1,000,000 residents.
- Medium metros are metros with a population between 500,000 and 999,999 residents.
- Small metros are metros with a population less than 500,000 residents.
Fair Use
We encourage and freely grant you permission to reuse, host, or repost the story in this article. When doing so, we only ask that you kindly attribute the authors by linking to Point2Homes.com or this page so that your readers can learn more about this project, the research behind it and its methodology.
For an overview of the real estate market in some of the areas mentioned in this study and other areas of interest, visit the links below:
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