Homebuilding is finally picking up in some major American cities, especially down South. It’s a hopeful sign that the severe inventory shortage that has upended the housing market is finally improving.
The real estate brokerage Redfin analyzed data on building permits for single-family homes (those with 1-4 units) to determine how many new houses are currently being built in the U.S. More building permits mean more new construction, which helps alleviate the inventory crunch and could eventually bring prices back down to earth. That's good news for homebuilders — and homebuyers.
“Builders were hit hard by the  housing crash — and home construction didn’t fully recover because of a combination of rising material and labor costs and restrictive zoning,” Redfin Chief Economist Daryl Fairweather said in a news release.
More recently, supply chain issues and materials shortages caused by the pandemic have further driven up construction costs. “As a result,” Fairweather said, “the U.S. is roughly 4 million houses short of meeting homebuyer and renter demand.”
The fact that fewer homes are on the market has made prices soar roughly 20% over the past year as buyers compete for limited inventory. And with mortgage rates rising above 5% this spring, homebuyers must now also contend with sky-high monthly payments. All of these factors have pushed many would-be buyers to the sidelines, with others rushing to snap up homes before prices get even higher.
“Building more homes is one of the best ways to ease the affordability crisis,” Redfin’s analysts wrote. Overall, new building permits were up 3.1% last month compared to April 2021, according to the Census Bureau, though new permits did fall 3.2% between March and April as mortgage rates and homeowner costs continued to rise.
10 cities building the most new homes
Here are the cities where the most new homes were built per capita in the first quarter of 2022 (between January and March), according to Redfin’s analysis of data from the U.S. Census Building Permits Survey.
Listed alongside each city is the number of single-family building permits per 10,000 people it had during this time period. The data only includes metro areas with more than one million residents.
- Austin, Texas: 31.1
- Raleigh, North Carolina: 30.7
- Jacksonville, Florida: 29.2
- Nashville, Tennessee: 26.6
- Charlotte, North Carolina: 22.9
- Phoenix, Arizona: 22.7
- Houston, Texas: 22.4
- Orlando, Florida: 20.3
- Dallas, Texas: 18.5
- Las Vegas, Nevada: 17.2
All of the cities in the top ten are located in the Sun Belt — a region of the United States that exploded in popularity as people moved from more expensive cities during the pandemic, seeking space, warm weather and affordable living. All that demand means that the Sun Belt has seen some of the largest spikes in home prices in the country.
“Rapidly rising home prices in the Sun Belt highlights the need for more homes,” said Redfin Deputy Chief Economist Taylor Marr. “The hope for buyers is that building new homes will tame price growth so that housing remains more affordable than pricey coastal areas, especially with mortgage rates higher than they have been in recent years.”
But not every city is building at the same rapid pace. Hartford, Connecticut saw the lowest amount of homebuilding in the first quarter, according to Redfin’s analysis, with 1.3 single-family permits per 10,000 people. New York had 1.9 permits per capita, followed by Buffalo, New York (2.1) and Chicago (2.3).
Will home prices finally fall?
More new construction doesn’t mean that home prices will fall immediately. Prices are still rising — especially for new homes, which tend to be more expensive than existing homes — and as a result sales of newly constructed homes were down 26.9% in April compared to a year earlier.
But in the long term, it’s possible that the housing market is finally heading towards normalcy after two years of sky-high prices and stiff competition. Existing home sales are also falling as buyers drop out of the market, and "it looks like more declines are imminent in the upcoming months,” National Association of Realtors Chief Economist Lawrence Yun said in a news release earlier this month. Yun projects that “we'll likely return to the pre-pandemic home sales activity."