setting up home folders for users for 12.04 server edition -ls: cannot open directory .: Permission denied

I created an instance to run on a cloud service. The machine image was 12.04 server edition x64.

Upon initially logging in and creating a user and su'ing into that user it doesn't have a home folder:

root@chrisjlee:~# useradd -G www-data me
root@chrisjlee:~# su me
$ ls
ls: cannot open directory .: Permission denied
$ cd ~
sh: 2: cd: can't cd to /home/me
$ 

Do i have to initialize something in order for home folders to be automatically created?