The Virtuous Circle of Home Building and Employment

The Virtuous Circle of Home Building and Employment

Home building creates jobs. In fact, for every 100 single-family homes built, enough work is generated to create 305 full-time jobs. With about half of those jobs created in the construction sector alone, home building has the potential to help transform a sluggish economic recovery into a more robust expansion.

It’s also true that a faster pace of job creation will in turn support demand for both rental and owner-occupied housing. But an anemic labor market has held back housing demand.

As a result of this chicken-and-egg problem, the Great Recession and its aftermath have suffered from a vicious circle in which declines in home building resulted in lost jobs and a weak labor market held back demand for home building.

However, recent housing and economic data suggest that a virtuous cycle is beginning to take hold. Growing optimism among home builders is leading to higher levels of residential construction, which suggests better times ahead for job creation and housing demand.

In particular, the NAHB/Wells Fargo Housing Market Index (HMI) for October increased one point to 41, the sixth consecutive monthly increase. Two of the index’s three components remained the same: current and expected sales, while the traffic index rose five points to 35, the highest in more than six years. The index, however, remains below the tipping point of 50 where an equal number of builders see better conditions as see poorer conditions.

Nonetheless, consistent with the positive October reading of the HMI, September housing starts and permits registered large gains. Overall starts increased 15% to an annualized rate of 872,000, the highest since July 2008. Single-family starts increased 11% to 603,000.