Posted Thursday, Jan. 17, 2013, at 10:15 AM
The housing recovery trundles on with the latest Census data on housing starts and building permits showing a 28.8 percent increase in permits between December 2011 and December 2012. The noisier housing starts series showed an even bigger bump.
The two main points to make about this are that even though housing activity grew a lot in 2012 it remains at a depressed level by historical standards. Merely returning to an average year next year would still imply a very big increase in activity. The other issue is that construction employment remains at a very low level. The chart above shows the ratio of people employed in residential construction to the number of new housing starts recorded by the Census Bureau. As you can see, the construction bust starting in 2006 was associated with a large increase in the ratio. Overall of course the total number of people working in residential construction fell. But it didn't fall by nearly as much as construction activity fell. This is possibly some kind of labor hoarding phenomenon, or else lower wages made employers more profligate with their use of labor. Whatever the explanation, for now the main impact of rising housing starts is simply to push the ratio back down closer to its historic norms. For employment to really tick up we'll need a lot more construction.