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Construction Labor Market Continues to Ease

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After a period of slowing associated with declines for some elements of the residential construction industry, the count of open construction sector jobs trended lower in the October data, per the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS). The data indicates the demand for construction labor market remains weaker than a year ago.

In contrast, after revisions, the number of open jobs for the overall economy increased from 7.37 million to 7.74 million in October. Nonetheless, this is notably smaller than the 8.69 million estimate reported a year ago and is a sign of a softening aggregate labor market. Previous NAHB analysis indicated that this number had to fall below 8 million on a sustained basis for the Federal Reserve to feel more comfortable about labor market conditions and their potential impacts on inflation. With estimates remaining below 8 million for national job openings, the Fed is underway easing credit conditions.

The number of open construction sector jobs fell from a revised 258,000 in September to a softer 249,000 in October. Elements of the construction sector slowed in prior months as tight Fed policy persisted. The October reading of opening, unfilled construction jobs is lower than that registered a year ago: 413,000.

The construction job openings rate fell back to 2.9% in October and continues to trend lower, albeit with a fair amount of statistical month-to-month noise in the recent data.

The layoff rate in construction moved lower to 1.2% in October after a 2% rate in September. This was the lowest layoff rate for construction in the data series (going back to late 2000). The quits rate in construction increased to 1.9% in October.

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HBGI Q3 2024: A New Status Quo for the Geography of Residential Construction?

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Residential construction has remained in low density suburbs and outlying areas, according to the National Association of Home Builders’ latest release of the Home Building Geography Index (HBGI). This trend is driven by persistent factors that continue to affect housing affordability including a limited supply of buildable lots, rising construction costs, and a shortage of skilled labor. By focusing on low-density areas, developers aim to lower some of the high costs associated with building in high density areas.

Single-family

All HBGI-tracked geographies continued to post growth in the third quarter as single-family starts are poised to be higher than last year. The HBGI is constructed using permit data, which has continued to post higher volumes than last year despite residential construction dealing with persistent structural issues.

Among the HBGI geographies, the highest growth in the third quarter of 2024 was registered in small metro core counties, which increased 16.3% on a year-over-year four quarter moving average basis. The market with the lowest level of growth was micro counties which were up 6.5% on a year-over-year four quarter moving average.

In addition to the main HBGI geographies, new analysis shows that counties with the highest population density have lost market share with respect to single-family construction. For this analysis, we define high-density areas to be counties in the top 10% with respect to population density. Approximately half of the total U.S. population lives in such counties.

These high-density counties previously constituted just under 40% of single-family construction in the first quarter of 2018 on a four-quarter moving average basis but since then the market share for these areas has fallen to 36% . This trend predates the COVID pandemic, as the market share for high-density counties had fallen from 39.7% in the first quarter of 2018 to 37.7% in first quarter of 2020, a 2-percentage point decline. During the pandemic, this market share fell to 35.4%, another 2.3 percentage point decline. Since the first quarter of 2022, single-family construction in high-density areas has remained at a constant market share, varying only a few percentage points.

Multifamily

In the multifamily sector, the HBGI year-over-year growth posted declines in the third quarter for all but one geography. The measure for small metro outlying counties was up 2.3% on a year-over-year four quarter moving average basis in the third quarter, as more than 9,000 permits were authorized in the third quarter, the highest reading for this geography type in the available data. Due to over 800,000 multifamily units currently under construction and higher interest rates, multifamily construction remains subdued from last year. Large metro suburban counties saw the largest decline in the third quarter of 19.3% year-over-year four quarter moving average basis.

High-density areas continue to make up a majority of the multifamily market. However, the market share has fallen from 67.4% in the first quarter of 2018 and to now 63.2%. This share fell significantly during the pandemic, dropping 3.8 percentage points over a two-year period. This is a notable shift for apartment construction to lower density areas.

The third quarter of 2024 HBGI data along with an interactive HBGI map can be found at http://nahb.org/hbgi.

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Private Residential Construction Spending Rises in October

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Private residential construction spending increased by 1.5% in October, according to the latest U.S. Census Construction Spending data. Year-over-year, the October report showed a 6.4% increase.

The monthly increase in total private construction spending was primarily driven by higher spending on residential improvements. Improvement spending surged by 2.7% in October and was 18.5% higher compared to the same period last year.

Spending on single-family construction inched up by 0.8% for the month. This marks a continuation of growth after a five-month decline from April to August, aligning with the rising builder confidence. Compared to a year ago, spending on single-family construction was 1.3% higher.

Meanwhile, multifamily construction spending ended its streak of ten consecutive monthly declines, edging up by 0.2% in October. Despite this slightly monthly gain, multifamily construction spending remained 6.8% lower compared to a year ago.

The NAHB construction spending index is shown in the graph below. The index illustrates how   spending on single-family construction has slowed since early 2024 under the pressure of elevated interest rates. Multifamily construction spending growth has also slowed down after the peak in July 2023. Meanwhile, improvement spending has increased its pace since late 2023.

Spending on private nonresidential construction was up 3.5% over a year ago. The annual private nonresidential spending increase was mainly due to higher spending for the class of manufacturing ($32.9 billion), followed by the power category ($6.4 billion).

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Small Gain for Multifamily Built-for-Sale Construction

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According to NAHB analysis of quarterly Census data, the count of multifamily, for-rent housing starts declined during the third quarter of 2024. For the quarter, 94,000 multifamily residences started construction. Of this total, 88,000 were built-for-rent. This was almost 14% lower than the third quarter of 2023.

The market share of rental units of multifamily construction starts declined to below 94% for the third quarter, as the built-for-sale, multifamily condo market experienced a gain. The historical low market share of 47% for bult-for-rent multifamily construction was set during the third quarter of 2005, during the condo building boom. An average share of 80% was registered during the 1980-2002 period.

For the third quarter, there were 6,000 multifamily condo unit construction starts, up from 3,000 a year ago. While still a small market, this was the highest quarterly count since mid-2022.

An elevated rental share of multifamily construction is holding typical apartment size below levels seen during the pre-Great Recession period. According to third quarter 2024 data, the average square footage of multifamily construction starts ticked higher to 1,061 square feet. The median edged up to 1,013 square feet. These estimates are near multidecade lows.

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Best Quarter for Multifamily Missing Middle Construction in 17 Years

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The missing middle construction sector includes development of medium-density housing, such as townhouses, duplexes and other small multifamily properties.

The multifamily segment of the missing middle (apartments in 2- to 4-unit properties) has generally disappointed since the Great Recession. However, there was a noticeable uptick for this type of housing construction in the most recent data. For the third quarter of 2024, there were 6,000 2- to 4-unit housing unit construction starts. This is double the pace of construction from a year prior.

As a share of all multifamily production, 2- to 4-unit development was just above 6% of total multifamily development for the third quarter. However this is still lower than recent historic trends. From 2000 to 2010, such home construction made up a little less than 11% of total multifamily construction. Construction of the missing middle has clearly lagged during the post-Great Recession period and will continue to do so without zoning reform focused on light-touch density. But recent data offer hope for additional housing supply for these kind of structures.

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Immigrant Share in Construction Sets New Record

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Reflecting the sharp increase in net immigration of recent years, the number of new immigrants joining the construction industry rose substantially in 2022. According to the latest American Community Survey (ACS), the industry managed to attract close to 130,000 new workers coming from outside the U.S. to help with persistent labor shortages. For comparison, this inflow surpasses the combined number of new immigrants who joined the industry in the two years prior to the pandemic. Only during the housing boom of 2005-2006, was the industry absorbing a similar number of new foreign-born workers.

Native-born workers remain reluctant to join the industry, with their total count remaining below the record levels of the housing boom of the mid-2000s by over half a million. As a result, the share of immigrants in construction reached a new historic high of 25.5%. In construction trades, the share of immigrants remains even higher, with one in three craftsmen coming from outside the U.S. This is consistent with the earlier ACS data that regularly shows higher shares of immigrants in the construction trades.

In 2023, 11.9 million workers, including both self-employed and temporarily unemployed, comprised the construction workforce. Out of these, 8.9 million were native-born, and 3 million were foreign-born, the highest number of immigrant workers in construction ever recorded by the ACS.

The construction labor force, including both native- and foreign-born workers, exceeds the pre-pandemic levels but remains smaller than during the housing boom of the mid-2000s.  As the chart above illustrates, it is the native-born workers that remain missing. Compared to the peak employment levels of 2006, construction is short 550,000 native-born workers and new immigrants only partially close the gap. Due to the data collection issues during the early pandemic lockdown stages, we do not have reliable estimates for 2020 and omit these in the chart above.

Typically, the annual flow of new immigrant workers into construction is highly responsive to the changing labor demand. The number of newly arrived immigrants in construction rises rapidly when housing starts are rising and declines precipitously when the housing industry is contracting. The response of immigration is normally quite rapid, occurring in the same year as a change in construction activity. Statistically, the link is captured by high correlation between the annual flow of new immigrants into construction and measures of new home construction, especially new single-family starts. 

The latest data show that the substantial uptick in the number of new immigrants in 2022 does not reflect the changing volume of home building as new single-family starts declined during that time period.

Previously, the link between immigrant inflow and home building activity also disconnected in 2017 when NAHB’s estimates showed a surprising drop in the number of new immigrants in construction despite steady gains in housing starts. The connection was further severed by pandemic-triggered lockdowns and restrictions on travel and border crossings, drastically interrupting the flow of new immigrant workers. In 2021, however, the flow of immigrants into construction returned to typical levels driven by home building activity.

The overall rising trend and the noticeable uptick after the pandemic in the share of immigrants are consistent with but more pronounced in construction compared to broader U.S. economy. Excluding construction, where the reliance on foreign-born workers is greater, the share of immigrants in the U.S. labor force increased from just over 14% in 2004 to over 17% in 2023, the highest share recorded by the ACS.

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Growth for Single-Family Built-for-Rent Construction

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Single-family built-for-rent construction posted year-over-year gains for the third quarter of 2024, as builders sought to add additional rental housing in a market facing ongoing, elevated mortgage interest rates.

According to NAHB’s analysis of data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, there were approximately 24,000 single-family built-for-rent (SFBFR) starts during the third quarter of 2024. This is 41% higher than the third quarter of 2023. Over the last four quarters, 92,000 such homes began construction, which is a more than 31% increase compared to the 70,000 estimated SFBFR starts in the four quarters prior to that period.

The SFBFR market is a source of inventory amid challenges over housing affordability and downpayment requirements in the for-sale market, particularly during a period when a growing number of people want more space and a single-family structure. Single-family built-for-rent construction differs in terms of structural characteristics compared to other newly-built single-family homes, particularly with respect to home size. However, investor demand for single-family homes, both existing and new, has cooled with higher interest rates. Nonetheless, builders continue to build projects of built-for-rent homes for their own operation.

Given the relatively small size of this market segment, the quarter-to-quarter movements typically are not statistically significant. The current four-quarter moving average of market share (9%) is nonetheless higher than the historical average of 2.7% (1992-2012).

Importantly, as measured for this analysis, the estimates noted above include only homes built and held by the builder for rental purposes. The estimates exclude homes that are sold to another party for rental purposes, which NAHB estimates may represent another three to five percent of single-family starts based on industry surveys. However, this investor market has cooled somewhat in recent quarters due to higher interest rates.

The Census data notes an elevated share of single-family homes built as condos (non-fee simple), with this share averaging more than 4% over recent quarters. Some, but certainly not all, of these homes will be used for rental purposes. Additionally, it is theoretically possible some single-family built-for-rent units are being counted in multifamily starts, as a form of “horizontal multifamily,” given these units are often built on a single plat of land. However, spot checks by NAHB with permitting offices indicate no evidence of this data issue occurring.

With the onset of the Great Recession and declines for the homeownership rate, the share of built-for-rent homes increased in the years after the recession. While the market share of SFBFR homes is small, it has clearly expanded. Given affordability challenges in the for-sale market, the SFBFR market will likely retain an elevated market share even as the rest of the building market expands in the coming quarters.

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Gains for Townhouse Construction

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Year-over-year gains for townhouse construction continued during the third quarter of 2024 as demand for medium-density housing continues to be solid despite slowing for other sectors of the building industry.

According to NAHB analysis of the most recent Census data of Starts and Completions by Purpose and Design, during the third quarter of 2024, single-family attached starts totaled 47,000, matching the highest quarterly count for townhouse construction since mid-2006. Over the last four quarters, townhouse construction starts totaled a strong 177,000 homes, which is 20% higher than the prior four-quarter period (148,000). Townhouses made up 18% of single-family housing starts for the third quarter of the year, a data series high.

Using a one-year moving average, the market share of newly-built townhouses stood at 17.4% of all single-family starts for the third quarter. With recent gains, the four-quarter moving average market share remains at the highest on record, for data going back to 1985.

Prior to the current cycle, the peak market share of the last two decades for townhouse construction was set during the first quarter of 2008, when the percentage reached 14.6%, on a one-year moving average basis. This high point was set after a fairly consistent increase in the share beginning in the early 1990s.

The long-run prospects for townhouse construction are positive given growing numbers of homebuyers looking for medium-density residential neighborhoods, such as urban villages that offer walkable environments and other amenities. Where it can be zoned, it can be built.

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Student Housing Construction Investment Rises in the Third Quarter of 2024

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Private fixed investment in student dormitories increased by 2.2% to a seasonally adjusted annual rate (SAAR) of $3.9 billion in the third quarter of 2024. This rise follows a 7% decrease in the prior quarter. However, private fixed investment in dorms was 1.8% lower than a year ago, as the elevated interest rates place a damper on student housing construction.  

Private fixed investment in student housing experienced a surge after the Great Recession, as college enrollment increased from 17.2 million in 2006 to 20.4 million in 2011. However, during the pandemic, private fixed investment in student housing declined drastically from $4.4 billion (SAAR) in the last quarter of 2019 to a lower annual pace of $3 billion in the second quarter of 2021, as COVID-19 interrupted normal on-campus learning. According to the National Student Clearinghouse Research Center, college enrollment fell by 3.6% in the fall of 2020 and by 3.1% in the fall of 2021.  

Since then, private fixed investment has rebounded, as college enrollments show a slow but stabilizing recovery from pandemic driven declines. Effective in-person learning requires college students to return to campuses, boosting the student housing sector. Furthermore, the demand for student housing is growing robustly, because total enrollment in postsecondary institutions is projected to increase 8% from 2020 to 2030, according to the National Center for Education Statistics. 

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Private Residential Construction Spending Rises in September

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Private residential construction spending inched up 0.2% in September, according to the Census Construction Spending data. The September report shows a 4.1% rise compared to a year ago.  

The monthly increase in total private construction spending for September was largely due to more spending on single-family construction. Spending on single-family construction rose by 0.4% in September. This broke a five-month streak of declines, aligning with the modest gains in single-family starts during September. Compared to a year ago, spending on single-family construction was 0.9% higher.  

In contrast, multifamily construction spending continued to decline, edging down 0.1% in September after a dip of 0.3% in August. Year-over-year, spending on multifamily construction was down 8.1%, as there is an elevated level of apartments under construction being completed. Meanwhile, private residential improvement spending stayed flat for the month and was 13.5% higher than a year ago.  

The NAHB construction spending index is shown in the graph below. The index illustrates how spending on single-family construction has slowed since early 2024 under the pressure of elevated interest rates. Multifamily construction spending growth has also slowed down after the peak in July 2023. Meanwhile, improvement spending has increased its pace since late 2023. 

Spending on private nonresidential construction was up 3.5% over a year ago. The annual private nonresidential spending increase was mainly due to higher spending for the class of manufacturing ($39.4 billion), followed by the power category ($6.9 billion). 

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