Where Builders Are Breaking Ground

New construction is down nationally, but some metro areas are making headway.

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With so many homes for sale and so few buyers, you'd be crazy to build a new house in this market, right?

Nevertheless, multifamily and single-family home building has been heating up in pockets across the nation, causing more than a few people to scratch their heads.

Nationally, construction permits, starts, and completions are still a fraction of what they were in the mid-2000's boom and low even compared to the more-normal pre-boom levels of the 90's and early 2000s.

But after falling precipitously through 2009, declines in construction permitting—a leading indicator of future construction activity—have leveled off in some areas. The trend line has even reversed direction in some places. New activity is taking hold in Texas, the mid-South, and the mountain states, according to real estate information web site Trulia.

Here's a look at the top 10 metro areas by construction activity in the third quarter of 2011.

Metro area New units permitted per thousand existing units, 2011 Q3 Multifamily (5+ units) share of new permitted units
Houston, Texas 3.68 27 percent
Dallas, Texas 3.41 55 percent
Raleigh, N.C. 3.04 5 percent
Omaha, Neb. 2.96 39 percent
Austin, Texas 2.81 20 percent
Salt Lake City, Utah 2.64 32 percent
Charleston, S.C. 2.59 8 percent
Charlotte, N.C. 2.53 23 percent
San Antonio, Texas 2.51 46 percent
Tacoma, Wash. 2.42 47 percent

Source: Trulia

But why are builders breaking ground in some regions and staying on the sidelines in others?

For one, many of the regions now seeing glimmers of new construction activity experienced relatively mild recessions. Thanks to a strong energy industry, Texas emerged from the Great Recession relatively unscathed. Houston is nearly back to normal construction permitting activity, according to Trulia, as are Dallas, San Antonio and Omaha. In essence, metro areas that had fairly light recessions have less ground to make up during the recovery.

Also, Texas, like many other regions with new construction activity, has a fast growing population, which ultimately puts pressure on housing supply. Indeed, the best predictor of construction permitting activity is population growth, says Trulia chief economist Jed Kolko, and Raleigh and Austin—some of the regions with the highest permitting activity—were among the fastest growing metro areas over the past 10 years.

"Builders build where they expect the population to grow," Kolko says. More people mean more demand for housing, multi-family or single-family.

To be sure, there are other parts of the country with fast growing populations—such as California and parts of the Southwest—but those regions were much harder hit by the twin scourges of overbuilding and severe price declines. "There's now less demand for new construction in those places even though they were fast growing," Kolko says.

The supply side also plays a role. "What you're going to start to see is construction activity pick up in parts of the country where, although we have an excess supply of homes nationally, we don't in that location," says Stan Humphries, chief economist at real estate site Zillow. "The fact that we have vacant inventory is a national phenomenon, [but] we don't have vacant inventory in certain markets, which means new construction is going to pick up in some of these markets."

[Read: Can Foreign Buyers Save the U.S. Housing Market?]

However, it's important to distinguish between multi-family and single-family new construction. Multi-family constructions tend to outpace single-family projects in more densely populated cities, such as Dallas and San Antonio where demand for rental properties coupled with rising rents has shifted builders' focus to multi-family projects.

Lower density areas such as areas in the Carolinas have seen more activity in the single-family home space—multifamily projects make up just 8 percent of permits in Charlestown and only 5 percent in Raleigh--since renters make up a smaller portion of residents.

The nascent reawakening of the construction sector in some parts of the country bodes well for the local economy and the jobs outlook, too. Construction jobs account for as much as 5.5 percent of all U.S. jobs.

While most experts don't expect the industry to recover to pre-recession conditions, new construction means more demand, which means building firms will likely be hiring. That in turn could translate into even more demand for housing—and new construction—as workers' incomes get a boost.

mhandley@usnews.com