Waning Housing Affordability Contributes To Slower Job Growth in Some U.S. Cities

Real Estate In-Depth | January 2020

WASHINGTON—Metro areas where affordability has worsened over the last five years have seen a decline in job growth during that same period.

Those findings released on Jan. 15 come from a new National Association of Realtors’ study, which examined the top 174 metro areas and ranked them based on affordability. NAR analyzed the shift in affordability ranking, considering the pace of non-farm payroll job growth in the third quarter of 2019 compared to average job growth from 2014 to 2018.

The NAR report, “Home Affordability Index Ranking and Payroll Job Growth,” found that affordability rankings declined in 81 metro areas, 34 of which saw non-farm job growth fall faster in the third quarter of 2019 than the national rate over the previous five years.

Lawrence Yun, chief economist of the National Association of Realtors.
Photo Credit NAR

Those 81 metro areas need more housing inventory to boost affordability, according to Lawrence Yun, NAR chief economist. “Job growth has slowed in these areas in part because limited supply is making homes less affordable,” he said. “As inventory continues to decline and affordability worsens, workers, businesses and companies are less incentivized to do business in these areas.”

Boise, ID experienced the largest drop in affordability ranking (108th in 2014 and 153rd in 2019 Q3). From 2014 to 2019 Q3, the median sales price of single-family homes in Boise increased 75% ($172,900 in 2014; $303,100 in 2019 Q3), four times the growth rate in median family income of 18% ($62,000 to $73,1013). With a steep decline in affordability, non-farm payroll employment growth slowed roughly 0.8% in 2019 Q3 from average growth during 2014 to 2018 (3.2% from 3.9%).

Tampa, FL, has also seen a rapid decline in affordability (98th in 2014; 133rd in 2019 Q3). During this same period, median single-family home prices jumped 58%, three times the growth of median family income of 19%. As affordability declined, Tampa’s job growth slowed by 0.8 percentage points (2.8% vs. 2.0%).

Nashville, TN., experienced a similar drop in its affordability ranking (105th in 2014; 126th in 2019 Q3). Median single-family sales prices increased 53%, nearly double the region’s median family income growth (23%). As affordability worsened, the pace of job growth was cut in half (1.9% vs 3.7%).

Metro areas in the relatively affordable Midwest region were also not immune to ranking declines. Grand Rapids, MI (37th in 2014 to 60th in 2019 Q3); Louisville, KY (51st to 62nd), Indianapolis, IN (46th to 64th); and Columbus, OH (57th to 80th) all experienced drops.

San Jose-Sunnyvale-Sta. Clara, CA, is the least affordable U.S. metro region, while Anaheim-Sta. Ana-Irvine, CA (173rd); Los-Angeles-Long Beach Glendale, CA (172nd), San Francisco-Oakland, CA (171st), and San Diego-Carlsbad, CA (170th) remain among the nation’s most unaffordable markets. There was no notable shift for Seattle, WA (164th in 2014; 164th in 2019 Q3) and Denver, CO. (159th, 158th). In Austin, TX, affordability ranking improved, but because it is already relatively unaffordable, the pace of job creation has slowed as well (134th, 122nd, -1.8%).

Yun says worsening affordability and inventory conditions could leave some of the nation’s previously fast-growing metro areas unable to sustain job and economic growth. “Even fast-growing markets could be hurt and unable to further expand because of weakening affordability conditions. We must improve affordability by building more homes in line with local job market growth,” he said.