Is Real Estate Development Going To Be Scarce Anywhere Soon?

Drive through most towns in America, and you’ll see development going on somewhere. It may be a commercial plaza, a new housing development, or a new apartment complex. But it’s hard to imagine that development can continue on indefinitely. Eventually, areas will become so built up, development will become scarce. Will be that be happening anytime soon? Recent housing data may paint a clearer picture of the future of real estate development in each region on the U.S.

Housing Starts Continue to Grow in the U.S.

Overall, residential real estate development continues to grow in the U.S. With more people back at work and wages slowly rising, more people are building new homes. Data from the U.S. Census Bureau shows:

* The number of building permits jumped 13.5% in January 2016 compared to January 2015, rising to a seasonally adjusted rate of 1,202,000.

* The number of housing starts rose 1.8% in January 2016 compared to January 2015, climbing to 1,080,000.

* The number of completed new homes was also up 8.4% in January 2016 compared to January 2015, with numbers reaching 1,036,000.

The numbers for December were even higher than this, which shows that new homes are being built at a modest pace. We’re seeing the most growth in building permits, which is the first step in the building process and a good indication of how many homes will be built within the next year or two.

When you look at the bigger picture, it appears that housing development isn’t slowing down anytime soon in the U.S. But when you look closely at each region, you’ll see a slightly different story.

Development in the Northeast

Ah, the Northeast; home to New York City, Boston and some of the oldest towns in America. It’s no surprise that development appears to accelerating in this area.

In January 2016:

* The number of building permits issued dropped 25.6% compared to January 2015, falling to a seasonally adjusted rate of 90,000.

* We did see a 44.4% jump in housing starts compared to the previous year, with 156,000 new privately-owned homes being started.

* The number of homes under construction was also up 38.9% compared to January of last year, with 182,000 homes still being built.

* The number of completed homes rose 39.7% in January 2016 compared to the same period last year.

Some of the most populous cities in America are situated in the Northeast, including New York City, Philadelphia, Providence, Boston, Hartford and Rochester. It’s hard to imagine that development would still be moving along at a significant pace, but it is. Data indicates that development won’t be scarce in the Northeast anytime soon – at least when it comes to residential real estate development. With that said, the number of permits issued in January 2016 declined by 25%, a rather significant amount. This may indicate that development will be slowing, but certainly not reaching scarce territory.

Development in the Midwest

With states like Indiana, Iowa, Wisconsin, Nebraska and Ohio, it’s hard to imagine that development would be moving along at a rapid pace. After all, many states in this region are situated along the Corn Belt, and Wisconsin is known for its dairy farms. But there’s a lot of open land in these states, and residential real estate developers are taking advantage of this.

In January 2016:

* The number of housing permits issued jumped 38.5% to 205,000 compared to January 2015.

* The number of housing starts actually declined 6.2% to 136,000 compared to the same period last year.

* The number of homes under construction fell 1.6% to 126,000 compared to last year.

* Completed homes rose 1.5% to 138,000 compared to the previous year.

Housing starts may have declined and the increase in completed homes is nothing to write home about, but the 38.5% jump in issued permits indicates that the Midwest may see some significant development growth over the next year or two.

With that said, it’s hard to imagine that the large farms in this region will be going anywhere anytime soon – right? Wrong. Between 2007 and 2012, the Midwest has lost a significant amount of its farms.

North Dakota: -3.2%
Kansas: -5.7%
Minnesota: -8.1%
Iowa: -4.6%
Wisconsin: -11%
Illinois: -2.3%
Ohio: -0.5%
Michigan: -6.8%
South Dakota: +2.6%
Nebraska: +4.7%

Nebraska and South Dakota were the only states in the region to see farm growth. Development won’t be scarce anytime soon in the Midwest, especially with farmlands continuing to shrink.

Development in the South

The South encompasses a number of states, so it’s no surprise that this region typically sees the most development growth. But recent data shows that while more homes are being authorized and built in this region, the growth compared to January of last year is lower than the Northeast.

In January 2016:

* 577,000 permits were issued, representing 11% growth compared to last year.

* 560,000 homes were started, up 4.9% compared to January 2015.

* 428,000 homes were under construction, which was 15.7% more than the previous year.

* 543,000 homes were completed, a 0.7% decline compared to January 2015.

Homes are still being built in the South, but it appears as if the pace of development may be slowing. The region is large, and there’s a lot of open land, so you would expect to see a higher growth rate. Overall, the region has the largest number of homes being built, but the overall growth is still minimal compared to the West and the Northeast.

Development in the West

Like the South, the West typically sees significant development growth year-over-year, and that trend continues going into 2016.

In January 2016:

* 330,000 permits were issued for new homes. That’s a 22.2% increase from last year.
* 247,000 homes were started, which is actually 15.7% lower than last year.
* 342,000 homes were under construction. That’s 18% higher than January 2015.
* 274,000 homes were completed, which was 25.1% more than last year.

Although housing starts were lower, the number of permits, homes under construction and completed homes were all higher. Compared to the rest of the U.S., the West appears to be outpacing everyone in terms of residential real estate development. That trend won’t likely be slowing down anytime soon.

After analyzing recent housing data, it’s safe to say that development won’t be scarce in the U.S. in the near future. The Northeast and the South may have slower growth rates, but people are still building, and the housing market is continuing to grow.