CommonFuture

CommonFuture

Time to rebuild a homebuilding industry

By David Pendered

Aug. 14 – Metro Atlanta provides a case study of a home-building industry that hasn’t rebounded since its peak in 2004, Census data show. The phenomenon has widespread implications in the escalating effort to ease housing costs.

For one, President Biden’s Housing Supply Action Plan, released May 16, envisions the private sector making a major return to residential construction and employing a host of planned inducements to build affordable housing. As the statement notes:

The year 2004 was the peak of residential permitting in the 29-county metro Atlanta area. Credit: Census.gov, David Pendered
  • “Fewer new homes were built in the decade following the Great Recession than in any decade since the 1960s – constraining housing supply and failing to keep pace with demand and household formation.”

Another issue is the market’s response to new-build dwellings with prices that reflect spiraling costs for materials and labor. Average hourly earnings for construction workers are up by 5% from May 2021 to May 2022 and the sector reported 400,000 job openings in April, the highest since record-keeping started in late 2000, according to reports by the National Association of Home Builders.

The number of construction permits issued in metro Atlanta in 2021 is 46% of the number issued in 2004, according to data sets in the Building Permits Survey produced by the Census.

The actual number of residential construction permits issued in metro Atlanta in 2021 was 39,466 compared to 74,007 permits issued in 2004, according to the Census data.

The region’s population grew by 27.9% during these 17 years, according to Census information provided by the Federal Reserve Bank of St. Louis. The resident population was reported at 4.80 million in 2004 and 6.14 million in 2021, according to an interactive chart.

These figures are for the 29-county area that comprises the Atlanta-Sandy Springs-Alpharetta metropolitan statistical area. The MSA had the same counties during the comparisons. It reaches from the foothills of the Appalachian Mountains to the Fall Line that separates Georgia’s Piedmont from Coastal Plain.

Houses comprise the vast majority of building permits issued in the past decade, Census data show. (Credit: Census, David Pendered)

The slowdown in residential construction, combined with the ongoing population growth, puts metro Atlanta squarely in line with Biden’s statement, which connects the housing shortage with the ever-rising price of dwellings for rent or ownership:

  • “While estimates vary, Moody’s Analytics estimates that the shortfall in the housing supply is more than 1.5 million homes nationwide. This shortfall burdens family budgets, drives up inflation, limits economic growth, maintains residential segregation, and exacerbates climate change. Rising housing costs have burdened families of all incomes, with a particular impact on low- and moderate-income families, and people and communities of color.”

One proposal in Biden’s package calls for reforming the nation’s largest program to support construction of mixed-income, multifamily developments of affordable housing. The goal is to allow more projects to qualify for funding through the Low Income Housing Tax Credit program.

A potential challenge in metro Atlanta is the historic preference for houses, as opposed to apartments or other multifamily structures, regardless of the residents’ income.

Metro Atlanta has a long record of building far and away more single family detached houses than any type of multifamily structure, such as duplex, townhouse, row house or apartment, the Census data indicates.

The Atlanta-Sandy Springs-Alpharetta spans 29 counties from the Appalachian foothills to the Fall Line, near Macon. (Credit: Commerce Department)

In 2021 more than four houses were permitted for every one unit permitted in a multifamily structure of five units or more. The actual number of permits issued for one residential unit was 31,560, compared to 7,677 permits issued for each unit in a structure that was to have five or more units.

In 2020, the rate was more than eight house permits issued for each permit issued in a structure of five units or more. For houses, 28,632 permits were issued and, for units in a structure with five or more residences, 3,390 permits were issued.

One caveat about the data involves the definition of a residential building permit. Building permits are defined as “New Privately Owned Housing Units Authorized, Unadjusted Units,” as authorized by a local government. This means the dwellings were approved for construction. The report does not indicate if the units were built and received a certificate of occupancy,

Looking to the future, the Atlanta Regional Commission forecasts a population of 8.9 million a region smaller than the 29-county MSA tracked in the Census data reported by the St. Louis Fed. The ARC has previously reported the slump in residential construction using its own analysis of the U.S. Department of Housing and Urban Affairs’ State of the Cities Data System for 11 counties.

Though residential construction and renovation continues in metro Atlanta, the number of residential construction permits issued is less than half that of 2004, Census data show.. (Credit: David Pendered)