Forget the beautiful beaches of Southern California and glitzy avenues of Las Vegas where land is getting scarce and prices are high. At least that's what some builders are doing. Builders and developers looking to be on the leading edge in growth markets have started to search for the next line of metro areas that could see the same type of strong, affordability-driven expansion that areas like Phoenix and Las Vegas have been enjoying for the past few years.
In fact, just one step to the east beyond those big growth markets in the Southwest are cities such as Boise, Idaho; Salt Lake City; and Albuquerque, N.M. While those of us on the coasts might think of dusty landscapes and big sky when we hear these names, an increasing number of developers are looking toward these cities as the next frontier in affordable land and housing. These three metro areas haven't had the same outrageous price appreciation that so many markets in the Southwest have seen in the past several years; as a result, these markets remain very affordable, with affordability ratios exceeding 50 percent when comparing median incomes with median prices. Another attribute they share is solid job growth, especially Boise and Salt Lake City, which rank fifth and sixth out of the top 75 markets; job growth is essential for supporting long-term housing demand.
Already on the road to expansion, the Boise metro area saw a 30 percent increase in permit activity during 2005, amounting to more than 21 permits issued per 1,000 residents. With big growth in technology and construction jobs over the last year, Boise has a bright future with lots of opportunity.
Salt Lake City has the most favorable demand/supply balance of the three cities from a builder perspective, with job growth outweighing permit issuance handily, despite permits increasing more than 20 percent in 2005. Clearly there will be strong long-term demand for housing in Salt Lake with population and jobs expected to continue increasing this year.
In comparison to permits in the other two cities, Albuquerque currently has the least amount of construction activity, but it is experiencing big percentage gains in construction jobs, has accelerating population growth and strong job growth, and has seen very gradually rising home appreciation since 2002 when prices were essentially flat. With an attractive business climate and high affordability, Albuquerque is going to get a lot of looks in coming years.
Increasingly, Americans have shown they are willing to move to a different state or region of the country in exchange for more affordable living, better jobs, or retirement. With the overall direction of these migrations being toward the South and the West, developers will be eagerly searching for metro areas that meet the climate, lifestyle, and affordability criteria to be “the next big thing” in land acquisition. Keep an eye on these cities in the “New West” corridor over the next couple years and you'll see what I mean.