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States in the South and Midwest lead the nation in homebuilding and affordability, according to a new national housing report card grading each state’s response to the housing crisis.
South Carolina tops the rankings as the only state to receive a grade of A in the new report card released on Thursday by the Realtor.com® economic research team.
Of the 13 A and B grades handed out, all were to states in the South or Midwest. Meanwhile, the seven F grades on the report card all went to states in the West and Northeast, where prices are usually higher and zoning and land use regulations are generally stricter.
However, no state in the nation scored an A+ in the new rankings, showing that there is room for improvement in every state when it comes to addressing the nation’s housing supply gap of nearly 4 million units.
“Our state report card rankings reveal stark disparities in housing affordability and homebuilding efforts across the U.S.,” says Realtor.com Chief Economist Danielle Hale. “While some states are leading the way with strong homebuilding activity, others are grappling with high housing prices and sluggish construction.”
The rankings for each state are equally based on two major factors: housing affordability and the ability to meet future supply challenges through new construction.
Affordability, one half of the score, includes the Realtors® Affordability Score and the share of median income it takes to make payments on a median-priced home.
Homebuilding activity, the other half of the score, is based on building permits per capita and the new-construction premium, which is the cost difference between new and existing homes.
In this last regard, South Carolina excels, with the typical new home in the Palmetto State priced 8.2% lower than the typical existing home. By comparison, nationwide, the median sales price for new homes was 3.4% higher than for existing homes last year.
It means that South Carolina is beating the rest of the nation in constructing homes at affordable price ranges.
South Carolina is also outperforming in raw construction activity, with 3.2% of the nation’s building permits last year, despite hosting only 1.6% of the country’s population.
As for its current home affordability situation, South Carolina is in the middle of the pack, ranked No. 24 on its affordability score, with the typical home price about 5.5 times higher than median annual salary.
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What other highly ranked states are doing right
The two states that received A- grades performed well for different reasons: Texas for its success in homebuilding, and Iowa for its current affordability.
Today, Texas homes are slightly less affordable than the national average, relative to local incomes. But the Lone Star State is making a major residential construction push to meet demand and ensure adequate housing supply for the future.
Texas accounted for 15.3% of the national residential construction permits last year, although it is home to just 9.2% of the population. That gap of 6.1 percentage points was the largest of any state, showing how Texas is punching above its weight when it comes to homebuilding.
Still, the median new-construction home in Texas costs 7.5% more than the typical existing home, showing that there is still room for the state’s builders to improve their focus on building smaller, more affordable homes.
Iowa, on the other hand, slightly underperforms in permit activity, with marginally fewer permits than its share of population would indicate.
New homes in Iowa also cost a whopping 58% more than existing homes, suggesting that homebuilders in the state are focused on constructing larger, more expensive homes, potentially neglecting the needs of first-time buyers.
However, overall, Iowa is among the most affordable states in the nation for homebuyers, thanks to its strong wages and low home prices.
The median list price in Iowa of $294,600 is just 4.03 times the local median salary of $73,122, the lowest ratio among the states.
How the lowest-ranked states could improve
A total of seven states received the lowest grade of F on the new report card: Oregon, Connecticut, California, Hawaii, New York, Massachusetts, and Rhode Island.
Generally speaking, these are states that combine poor home affordability with inadequate residential construction activity to keep up with demand.
Based on numerical score, Rhode Island ranks lowest on the report card. As the smallest state, Rhode Island might suffer from a lack of available land to build on—although the second-smallest state, Delaware, ranked above average with a C+.
California, a state notorious for its unaffordable housing, is the worst in the nation for its permits-to-population ratio. Last year, California accounted for 6.8% of all residential permits, despite having 11.7% of the total population.
Homebuilders in California blame excessive regulations and land use restrictions, which they say raise construction costs and deter new construction.
“If California is serious about solving its housing crisis, we need a legal and regulatory system that supports—not stifles—homebuilding,” says Dan Dunmoyer, president and CEO of the California Building Industry Association. “That means [environmental regulation] reform, streamlined permitting, and more flexible land-use policies.”
The CBIA has called on state lawmakers to reform the California Environmental Quality Act, saying that it is often abused to block or delay new housing projects. The group also advocates for streamlined permitting and reforms to “outdated and restrictive” permitting laws.
Likewise, New York is in dire need of regulatory reforms to encourage more homebuilding, says Michael Fazio, executive director of the New York State Builders Association.
“We need housing terribly. In this state, it’s really at a crisis point, and everybody talks about it, but we need to be doing more to address it,” he says. “Red tape and regulations are a major impediment—that’s a major obstacle to building housing.”
As well, Fazio says that New York’s recent move to impose the highest level of wetland protections on 1 million acres of land will put a serious damper on new construction, as much of the newly protected land is adjacent to existing suburbs with utilities connections.
In Syracuse, for example, the new restrictions have increased protected acreage by 245%, with more than 144,000 acres contiguous to the urban area falling under protected status, according to a study commissioned by NYSBA.
Excessive local zoning restrictions and lengthy permitting and review processes add to the pain for homebuilders in New York, says Fazio.
“Builders are leaving because it’s just so onerous,” he says. “They’re picking up … going to North Carolina, South Carolina, Virginia, where regulations aren’t as onerous as here.”
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