Report

Housing Heats Up: Home Building Patterns in Metropolitan Areas

Alexander Von Hoffman

Abstract

Among the many effects of the unprecedented period of sustained economic growth which the United States is currently enjoying is a surge in the construction of new homes. A growing economy spurs job growth, which stimulates increases or changes in the population, which in turn brings about a demand for additional housing. Even as the national economy grows, however, some regions and locales do better than others, and the amount of home construction is distributed unevenly among the cities and suburbs of our metropolitan regions. This study investigates this distribution of home building in American cities at the national, regional, and metropolitan levels over the economic boom, bust, and revival of the last fifteen years.

Key Findings

A study of new housing construction in America’s 39 largest metropolitan areas during recent periods of economic boom (1986), bust (1991), and revival (1998) finds that:

  • The number of new homes constructed in America’s largest metro-politan areas has been growing steadily since the recession of the early 1990s and is nearing the peak level of the real estate boom in 1986. Between 1991 and 1998, the number of new homes built in metropolitan areas grew by nearly 78 percent, climbing to 76 percent of the housing construction level of 1986.

  • Most of the new homes are built in the suburbs. In each of the years studied, more than 80 percent of new housing construction took place in the suburbs.

  • Despite the dominance of suburban home building, large cities experienced rapid gains in new housing construction between 1991 and 1998. The number of new housing permits in large cities more than doubled during this period, growing at a faster rate than that of suburbs and metro-politan areas in general. Large cities’ share of metropolitan permits also rose from 14.6 percent in 1991 to 17.8 percent in 1998.

  • However, the gains in metropolitan-area home building are distributed unevenly. In some large cities, new home building is stagnating; while in others, it is booming. In half of the large cities, the share of metropolitan permits shrunk between 1986 and 1998, while it expanded in just over a quarter of the cities.

  • Size of the cities’ land area matters. In general, compact, densely developed cities are constructing fewer homes and have a relatively smaller share of regional housing permits than spacious cities that have substantial amounts of undeveloped land. Only two compact cities, Seattle and Orlando, issued more than 1,000 permits and had more than 10 percent of all permits issued in their metropolitan areas in 1998.

  • A comparison of the 39 large cities by their land size shows clearly which cities, by 1998, had “hot” and “cold” housing construction markets. The hot markets are: Seattle, Orlando, Boston, Miami, Columbus (OH), Portland (OR), Tampa, New York, San Francisco, San Antonio, Phoenix, Houston, Dallas. Cold markets are: Baltimore, Providence, St. Louis, Sacramento, Detroit, Philadelphia, New Orleans, Chicago, Kansas City, Los Angeles.