Economy Watch: Apartment Supply Not Keeping Up with Demand in Most Markets

Out of the nation's 50 largest metros, only 10 have enough new housing supply to keep pace with job growth, according to a new report from Apartment List, indicating that a lack of new construction is contributing to the affordability crisis in many parts of the country.
Source: Apartment List Rentonomics report, "Housing Shortage: Where is the Undersupply of New Construction Worst?"

Source: Apartment List Rentonomics report, “Housing Shortage: Where is the Undersupply of New Construction Worst?”

Only 10 of the nation’s 50 largest metros have produced enough new housing to keep pace with job growth in recent years, according to a new Apartment List report analyzing data on building permits and employment. The report also found a strong correlation between the number of jobs per permit and rent growth from 2005 to 2015, indicating that the lack of new construction is contributing to the affordability crisis in many parts of the country.

In many metros, job growth tends to be centered in the county containing the core city, while a greater share of housing units are added to the surrounding suburbs, leading to heightened levels of undersupply in the core cities, Apartment List also said. For example, over the 10 years from 2005 to 2015, San Jose had the biggest undersupply of new construction, and also experienced the fastest rent growth, at 57 percent.

Supply lags demand

To keep pace with demand, a city should add one new unit for every one to two new jobs, Apartment List asserted. Many metros maintained this pace over the 10-year period, but during the more recent post-recession period from 2010 to 2015, as jobs have rebounded, new construction hasn’t kept pace. Even many of the areas that saw significant job losses during the recession haven’t been producing enough new housing during the recovery.

Cities that add jobs without also increasing their housing stock quickly become unaffordable for all but the most well-off residents. As demand for housing continues to rise, supply must respond accordingly, or the current affordability crisis being experienced in many parts of the country will only be exacerbated, the report concluded.