The Lehigh Valley is not adding enough housing to keep up with job growth, a recent study finds, a problem shared with other major coastal hubs experiencing soaring economies and debilitating construction costs.
Home construction all but stopped in the Lehigh Valley and nationally after the Great Recession, and has only slowly climbed in the decade since, while job growth has marched on steadily. Some areas of the country are doing better than others at building housing in pace with those added jobs, according to an ApartmentList analysis of jobs and housing permits in hundreds of counties and Metropolitan Statistical Areas.
From 2008-18, the Allentown-Bethlehem-Easton MSA, which includes Carbon County and Warren County, N.J., added 2 housing units per 1,000 residents, but 3.3 jobs per 1,000 residents, on average, according to the report.
By this study's calculation, a balanced market is one in which one or two jobs are added per housing unit, placing the region on the cusp of an undersupply of new housing. The national figure is more balanced, at a ratio of 1.1.
The ratio tends to be highest in a relatively small set of coastal metro areas, such as San Francisco (3.5) and Boston (2.5), where strong economies are adding a lot of jobs but land constraints and prices prevent a lot of new housing, study author Chris Salviati said.
"The cities doing the best of meeting that demand are doing it by building single-family housing — by continuing to sprawl out," he said.
That's the sticking point for many parts of the country. The cost of lumber has come down from its 2018 peak, but the combination of land shortage, lack of skilled labor and relatively high regulatory costs have hindered the construction of single-family homes, particularly affordable ones.
Houston is one of the most affordable metropolitan areas of the country right now because of its accommodating development laws, points out Mark Vitner, a senior economist with Wells Fargo Securities.
"You can still build a house in Houston for under $250,000," he said. "You can't do that anywhere else."
As a result, multifamily permits have picked up the building slack in the last decade, particularly in the metropolitan areas suffering from undersupply.
Nationally, the study says, the share of building permits that were for multifamily housing increased from 23.4% before the recession to 33.9% post. The Lehigh Valley MSA's share increased from 11% to 15%.
This trend in multifamily building is most prevalent in coastal cities like San Francisco, which saw its share increase from 36.9% to 65%. That leads to a smaller denominator — building permits — compared with these cities' ballooning population, thereby ratcheting up the jobs-to-permits ratio, Vitner points out.
"I don't think the Lehigh Valley has seen anything approaching that population growth, and the area already has a significant housing stock," he said.
The differential between new jobs and new building permits can be further complicated by the regulatory process, which in some areas leaves permits in the approval pipeline for several years, said Loren Keim, president of Century 21 Keim Realtors in Allentown.
"So those building permits from 2018 may have been started in 2016 as the market was continuing to recover," he said. "I think we'll see a significant bump in building permits over the next 24 months."
The ratio produces striking results at the county level, particularly Northampton County, which has the same jobs-to-permit ratio as the San Francisco metropolitan area.
Salviati said counties tend to show more extremes than their respective metropolitan areas; for example, San Francisco County's ratio is 5.6.
"One county out of whack is not as concerning to me as seeing a metro out of whack," he said.
Some counties are work destinations but not living destinations, and vice versa, Vitner said. But the variation is also a reflection of whether jobs are being added in the places where people want to live, or whether more people are commuting.
Since 2010, there has been a nearly 10% increase in the number of people who live outside the Lehigh Valley but commute in for work, according to the Lehigh Valley Planning Commission.
In other words, there are too many factors contributing to this simplified ratio to draw a responsible comparison between a county like Northampton and a metro like San Francisco.
Nor does the ratio, which includes part-time and full-time jobs, indicate what kind of jobs are being added and what kind of homes are being built.
"It certainly could be the case that it's low-wage jobs and large single-family homes, and we wouldn't consider that a healthy, balanced market," Salviati said.
Housing affordability challenges used to be confined to places like California, a highly desirable place to live that sees consistently high demand and thus high prices, Vitner said. The combination of forcing the middle class inland and the rising construction costs have spread these challenges to the rest of the country.
San Francisco remains the least affordable metro, with 7% of the homes sold in the first quarter of 2019 being affordable to families earning the city's median income, according to the National Association of Home Builders.
Nationally, at the end of 2018, 57% of homes were affordable to the middle-income earner. Affordability has recovered slightly in 2019 to about 61%, the NAHB reported.
Though the metric is simplified for a complicated question of how to align the housing market to the job market, it's a necessary conversation starter for George Lewis, director of research and analysis at the Lehigh Valley Economic Development Corp.
"It further confirms there's an issue in the housing market that warrants deeper understanding," he said.
