Posted on
Jul 27, 2023

US Metro Analysis - Permitting, Jobs, Supply, Demand

Wolf Rendall & Jesse Edelstein


In this post, we analyze current trends in local real estate markets and identify the best metropolitan areas for investors to expand in. We rank the 33 largest metros through an analysis of their housing stock growth and population growth as measures of supply and demand. Housing supply moves slowly, but it effectively telegraphs its trajectory through the permitting process, which is tracked by the ACS and NAHB

Previous research from Vontive has shown that only 35% of households can currently afford to make mortgage payments on a median home, but it was on the national level. Real estate trends at the national level often miss trends in specific markets. Today’s analysis expands on our previous affordability studies by identifying the supply growth and demand growth in each major U.S. market, driving prices higher or lower, with direct implications for investors looking to expand their operations or exit profitably before an inundation of competition.

In this blog post, we create two metrics to describe the change in a Metropolitan Statistical Area (MSA). We measure Supply Growth by the sum of housing completions and active listings year-over-year. We also measure Demand Growth by the year-on-year change in the sum of total jobs tracker by the Bureau of Labor Statistics in the counties comprising an MSA. By comparing these two measures for each MSA in our set, we find that metro areas such as Austin, Nashville and Miami are doing the best job at meeting their housing demand while places like Boston, San Jose, and Denver are struggling the most to produce adequate housing supply to welcome new residents. 

Finally, we show metrics derived from Vontive’s incoming loan application to provide additional insight into how savvy investors are reacting to these market dynamics. We analyze how investor activity in Vontive’s growth MSAs compares to their trends in jobs and new housing units. Read on to see where local economics support new projects and where we see investors deploying new capital this year.

Permitting Trends and Rent

To better understand the overall trends of U.S. permitting and the impact on investor returns over the past 20 years, the chart below shows overall permits by building type and nationwide rents. We can clearly see the devastating effect of the 2008 financial crisis on national permitting after years of solid growth. Despite year over year growth post-2008, the number of permits being issued on a yearly basis has still not reached the pre-2008 high. Furthermore, economic shocks following the pandemic have resulted in another decrease in permits issued in 2021. 

In the chart above we observe a steady rise in Single Family Residence (SFR) rents with a striking pause seen in 2021 following a peak in permits the year before. We clearly observe the slope of the rent curve relenting as permits increased. The reprieve for new renters evaporated after permitting dropped and household preferences for SFRs remained, demonstrating the impact of new housing units on rent. As we mentioned, these nationwide trends obscure the on-the-ground reality for investors and renters in a particular city, so let’s dive in!

Metro-Level Trends

In order to analyze a market’s future price changes, we need to know how demand is changing. To get a reasonable measure of whether an area's growth is heating up, cooling down or stabilizing we look at year-on-year job growth in the counties that make up an MSA. Additionally, we use a combination of listings data and construction starts data to derive an index for a metro area's current supply growth.

The alignment chart above shows where each of the Top 33 Metropolitan areas fall on a 2-axis plane measuring Housing Supply and Housing Demand. From this chart we can begin to identify trends in the health and movement of each metro. We then grouped metros according to their alignment with growing or declining supply and demand. The metro areas highlighted in black are further analyzed in the section corresponding to their quadrant.

Appreciation Metros (Bottom Right, Best)

This group consists of some growth metros such as Indianapolis and Orlando, but also has some of the largest urban areas in the country which suffered the most during the pandemic, such as New York and Seattle. The return of job opportunities combined with a slowdown in housing production makes these metros some of the most attractive in our opinion. After a period of decline, these areas are seeing strong job growth and inventories will be absorbed by new workers, after accumulating recently. Reasonably priced assets here should enjoy a rising tide that accelerates owner gains.

If we focus on Orlando as an example, rents rose 7.5% in SFRs and 1.8% in multifamily apartments since May 2022, while home prices experienced a modest 0.7% decline amid an historic rise in interest rates. These metros enjoy strong downside protection from a slower pipeline of new units and strong job growth.

Risk Metros (Top Left, Worst)

Only a few MSAs fall into this category, Riverside and Los Angeles, however San Francisco comes very close. They are marked by job losses and increasing home inventory. These cities have uncertain prospects for investors as their employment outlook worsens and their supply of new homes increases. As jobs decline, we expect new sellers to enter the market, further increasing supply. Investors in these areas may still be able to apply their local knowledge and management experience to find profitable projects, but they will face unfavorable economic conditions overall.

If we focus on Riverside as an example of this group, a survey of research from sources like John Burns and others indicates that home prices have fallen 2.8%, while SFR rents have increased 4.2% year on year in the Inland Empire. We do not expect significant further rent growth in this MSA and will likely see further price declines.

Growth Metros (Top Right, Good)

The next category can be found in the right side of the graph which includes Austin, Salt Lake City, Phoenix, and Miami. These cities are characterized both by strong housing supply growth and demand growth. These areas provide ample opportunities for investors, however they face risks of oversupply in the most rapidly expanding markets. In fact, supply growth in many of these cities is so strong, we expect to observe the same short-term relief in rent increases that we saw in the national trend graph following peak new construction.

If we focus on Austin, TX as an example, another survey shows home values have fallen by 10.4% and apartment rents have fallen by 1.7% in the past year. An investor must pay careful attention to the overall supply coming to market in the coming months. The value of their properties may erode significantly with further supply increases evident in cities similar to Austin like Miami, Houston, Nashville, San Antonio, and Jacksonville, despite the strong job growth. 

Stable Metros (Bottom Left, Moderate)

While falling demand is not ideal, as long as demand falls along with supply, there are still opportunities for both price appreciation and rent growth. In cities like Portland, Chicago, or the East Bay Area where demand is moderately falling, but supply is falling faster, an investor can often find profitable projects with both a fix-and-flip or rental strategy. These metros will experience a serious bifurcation in their housing inventory within ideal neighborhoods and less desirable neighborhoods, so local expertise and solid financial backing is critical to a successful project.

If we focus on the East Bay, which includes the cities of Oakland, Berkeley, and Richmond California, we see that according to multiple economic analyses, overall home prices have fallen 3.1%, SFR rents have fallen by 1.0% and apartment rents have fallen by 0.3%. However, if we look at individual cities using Zillow’s Rental Manager Tool, we see that while Oakland and Berkeley have fallen year-over-year, other cities like Albany and Alameda remained flat.

Fastest Demand Growth Metros

You might be wondering, which are the best markets for an investor who values high demand for housing? These metro areas are likely to be more liquid and maintain a higher floor in any downturn. Based on BLS data, the top 10 MSAs for year-on-year job growth are:

Strongest Supply Growth Metros

Another investor may value easy access to new projects, i.e. increasing supply in their area. The following table describes the metropolitan areas which are experiencing the highest recent growth in the number of available housing units and units soon to come to market. 

Best Metros for Investors

Given the interplay of supply and demand trends, an investor who is looking for high demand and low supply should consider these top 7 metros with the highest gap between new demand and new supply:

An investor should think carefully before committing capital to a project in a metro where new supply is outpacing demand. The value of their asset is more likely to fall from increasing competition and fewer buyers. Some of these markets may come as a surprise, since they include some of the fastest growing employment MSAs in the table above, but their supply growth severely restricts appreciation. These are the 7 seven most challenging metros from our analysis:

Vontive Demand Trends

How does this analysis map to Vontive’s experience? As a lender to investors, Vontive’s Growth Index is a unique insight into the revealed strategy of local real estate investors. Many of the same trends we identified are captured in our data. Charlotte, Tampa, and Raleigh, and most other metros occupied high demand and/or low supply areas. Investor activity measured by this metric is evidence that capital is moving how we would expect. There is at least one surprise in Portland’s aggregate data.

Among all the MSAs that Vontive saw growth in, Portland stood out as a surprise. Why would we see growth in an area with declining jobs, demand, and supply; which occupies the challenging Stabilizing Metros (Bottom Left) area of the alignment chart? It is an example of a bifurcation trend. The growth Vontive experienced in the Portland metro area is concentrated in the suburb of Vancouver, WA. Similar to Alameda and Albany in the East Bay Area, Vancouver provides an alternative to the urban center of activity in Portland, but is still counted within the MSA. Both are also separated by bodies of water. Investors in Portland’s other areas have broadly pulled back. 


 While there are opportunities everywhere for those willing to look, some metropolitan areas offer significant advantages for particular strategies, fix-and-flip or buy-to-rent. In the Growth MSA Alignment segment, a rental investor may see little-to-no appreciation, but rental demand will continue while job growth is high. Seattle, Charlotte, Tampa, and other cities in the Appreciation group offer both attractive fix-and-flip and rental opportunities due to increasing demand with less new supply. In contrast, the Risk and Stable MSA segments, including cities in CA and the Southern US may see medium-term declines in value due to new supply that often outpaces economic growth, so fix-and-flip strategies should outperform.

Vontive’s top growth metros for new loan applications, a novel measure of real estate investment community behavior, largely aligns with these projections, but we also encourage investors to consider projects in metros with strong underlying economic conditions such as New York, Orlando, and Salt Lake City.


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