Eye on the Economy: As Housing Improves, Job Creation Follows


As the market recovers, the demand for labor in the housing industry grows. Indeed, recent BLS data suggests a rise in construction job openings over the course of 2013, which bodes well for future job creation, which in turn will help support the ongoing sluggish recovery in the broader economy.

In general, economic news continues to be a mix of positive and negative developments. For example, separate readings of consumer confidence indicated differing findings. The Thompson Reuters and University of Michigan report of consumer sentiment was up 1.3% on a monthly basis in March, but the Conference Board measure was down 12.3% on a monthly basis.

As reported by the Bureau of Economic Analysis, GDP growth for the final quarter of 2012 was revised up to a meager but positive 0.4% rate. While an improvement over the prior estimate of a 0.1% decline, the final estimate also included a downward revision of the growth of personal consumption expenditures, perhaps reflecting the cautious mood of consumers.

After the resolution of the Fiscal Cliff situation in January, the payroll tax cuts of previous years ended. While it is uncertain the degree to which this will affect growth in 2013, there is a growing consensus that the reduced level of after-tax income for households this year will depress GDP later in the year. The end of the payroll tax cut, plus impacts from the smaller fiscal drag from the sequester of federal government spending that began in March, will act to reduce economic growth.

However, other offsetting factors will help support the long-run improvement of the economy. For example, according to data from the Federal Reserve, the total amount of consumer credit grew in February at a 7.8% rate, which is good news for consumption growth. This marks the 18th consecutive increase in credit, with auto and credit card loans up in February. On the other hand, student loans continue to grow, which could have a growing negative impact for home buying among younger households in the years ahead.

The mixed economic news was also reflected in a relatively weak jobs report for March. Only 88,000 net jobs were created, about half of analysts’ expectations. The unemployment rate fell to 7.6%, but this decline was actually generated by 496,000 individuals exiting the labor force. And these exits were not attributable to soon-to-retire older workers. In fact, the BLS data indicated that labor force participation rates continue to decline for those aged 25 to 54 in the prime working years but are remaining steady for those 55 and above.

Despite the gloomy labor report, employment growth in home building appears to be picking up. In March, the count of home builders and residential contractors grew by almost 15,000. This marks total job growth over the last six months of nearly 74,000 for this sector.

More employment growth for building is expected as housing improves. In April, the NAHB / First American Improving Markets Index (IMI) held steady at a count of 273 metro areas. The IMI currently includes about 75% of metro areas in the nation, reflecting the broad-based nature of the housing recovery.

Another indicator of the improvement in housing is that property tax collections for state and local governments are now on the rise, reaching a $474 billion annualized rate of collections among all property owners at the end of 2012. Despite the large declines in housing prices in recent years, property tax collections never fell significantly, leaving home owners facing higher than historical effective property tax rates.

Additional evidence of housing stability will be a decline in the share of single-family homes that are built for rent. At the end of 2012, the market share of such construction stands at 5%, which is noticeably higher than the 20-year historical average of 2.7%. As the single-family construction market recovers, this share will retreat back to shares closer to the historical trend.

Total residential construction spending was up in February by 2.2% on a monthly basis, after three consecutive months of decline. Nonetheless, construction spending levels are up more than 20% year-over-year and up 36% from the cycle low of mid-2011. Single-family construction spending was up 4.3% from January. NAHB is forecasting a 23% growth rate in 2013.

Multifamily spending fell 2.2% from January, registering the first monthly decline since September 2011. Home improvement spending improved slightly in February, but is up only 1.1% from February of 2012. Nonetheless, remodeling spending is expected to pick up with growth in existing home sales. And recent HUD data suggests that 5.9%, of all homes, up from prior analyses using different methodology, meet a definition of physically “inadequate,” suggesting future residential improvement business.

In addition to the recent job growth we have seen for builders and contractors, there are a rising number of open positions. In fact, at 116,000 unfilled positions in the construction sector, the number of open jobs is now at a post-Great Recession high.

With the focus on shortages of construction labor in certain areas of the nation and an impending end game on Capitol Hill for immigration reform, NAHB recently examined the share of the building workforce comprised of immigrants. According to the 2011 American Community Survey, 22% of all labor in the construction sector is made up of immigrants.

In other policy news, the President delivered his budget proposal to Congress this week. Overall, the president has endorsed revenue neutral corporate tax reform, which would involve eliminating certain tax credits and deductions for C corporations and reducing the applicable corporate tax rate. Such an approach would leave taxes on pass-thru and sole proprietorship income unchanged. Many in Congress, including Chairman Dave Camp (R-Mich.) of the House Ways and Means Committee, have rejected this approach and are working toward tax reform involving both the corporate and individual sides of the tax code.

Among other items in the budget, the President once again proposed limiting the value of, among other tax expenditures, itemized deductions like those for mortgage interest and real estate taxes. This rule would limit the tax value of such deductions at a 28% rate. Thus, this proposal would raise taxes on home owners with a mortgage with adjusted gross income of more than $223,050 ($183,250 if single).

The 28% cap would also apply to tax-exempt multifamily bonds and the section 199 domestic activities deduction claimed by many home builders (although this limit would not apply to C corporations). The budget also calls for an end to the taxation of capital gains due to a carried interest (i.e. sale of an apartment building) as capital gains. Additionally, the fiscal plan suggests improvements for the Low-Income Housing Tax Credit, but restrictions on the use of independent contractor status.

With New Homes Month in April, NAHB Economics and Housing Policy’s Survey team has taken a look at housing and home buyer preferences. According to NAHB’s What Home Buyers Really Want, 43% of recent and prospective buyers want a home with either two and a half or three bathrooms. Newly built homes are more likely to meet this consumer need.

Additionally, the same survey data suggest that 62% of home buyers want a home with at least 2,000 square feet of living space. This is exactly the share of new single-family homes meeting this size threshold, while only 42% of existing homes meet this requirement.

Finally, a new HUD survey reveals that there are 2.25 million multifamily rental properties in the U.S. Of this total, 1.64 million consist of a single building, but almost 100,000 consist of 20 or more buildings. But most are small, with 1.4 million such properties valued at less than $500,000.           

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