buildingpermits0517

Building Permits and Inventory

Did building permit activity rebound at your county?   How many new housing units should be added to the market?

While tight housing inventory pushes home prices upward, we look at building permits to see how many new housing units are expected to come on the market. Building permits are an important leading indicator for developments in the economy. They show how much investment is taking place in the local economy and its overall health.

We compared the number of new housing units[1] authorized by building permits in the following three years:

-         2000 – “healthy” inventory conditions,

-         2005 – “strong” inventory conditions, and

-         2015 – “tight” inventory conditions

While the majority of counties reached the highest number of building permits in 2005, it is interesting to see what number of building permits each had under healthy (2000) and low (2015) inventory conditions. Then, we estimate the number of new housing units that needs to come on the market so that counties have enough inventory to satisfy housing demand.

Descriptive Analysis:

All units

Comparing construction activity in 2000, 2005 and 2015, 28 percent of the counties[2] had the highest number of building permits in 2000 while 60 percent of them had a peak in 2005 and 12 percent in 2015. Most of the counties, which had a peak in 2000 were located in Michigan, Colorado and Indiana. Arizona, Hawaii, Maine and Florida had the highest share of counties which had a peak in 2005, while North Dakota and the District of Columbia issued more building permits in 2015 compared to 2000 and 2005.

Comparing the number of building permits issued in 2000 and 2015, on a national level, we see that permits in 2015 were 74 percent of the permits issued in 2000. In terms of percentage change, 2015 permits were 26 percent less than their 2000 level. However, at a county level, we see that 25 percent of the counties have rebounded above their year-2000 level of building permits. Lea County, NM,  Vernon Parish, LA, Grant Parish, LA, Hutchinson County, TX and East Feliciana County, LA were the top five counties with the strongest gains in building permits issued in 2015 compared to their 2000 level. It is interesting to mention that single-family homes are typically built in these five counties.

Single-units

While the American Dream is to own a single-family home, let’s take a closer look at the building permits issued for single-units. Based on 2015 data, single-units monopolized the market in 70 percent of the counties. In these areas, building permits were issued for single-units only. In contrast, 1 percent of the counties did not build any single-family home.

Comparing the number of single-family permits in 2000 and 2015, on a national level, we see that permits in 2015 were 58 percent of the permits issued in 2000. In terms of percentage change, 2015 single-family permits were 42 percent less than their 2000 level. However, looking at single-family construction by county, we see that 24 percent of the counties rebounded to 2000’s levels of building permits. Lea County, NM,  Vernon Parish, LA, Grant Parish, LA, Hutchinson County, TX and East Feliciana County, LA were again the top five counties with the strongest gains in single-unit building permits issued in 2015 compared to 2000.

Counties with the most “unit-dense” buildings in 2015

We also calculated the number of units per building by simply dividing the total number of units (2+) to the total number of buildings (2+). We found that 11 units were built per building on average in 2015[3]. However, some counties built more than 50 units per building on average while in Prince George County, MD the ratio reached 319 units per building. To meet the growing demand for housing, more multifamily units are built in these areas. Here are the counties with the most “unit-dense” buildings in the U.S.:

-         Prince George County, MD: 319 units per building

-         Arlington County, VA: 136 units per building

-         New York County, NY: 121 units per building

-         Fairfax County, VA: 119 units per building

-         Fulton County, GA: 113 units per building

-         Clearfield County, NY: 108 units per building

Select a State and County and see how many units were built on average per building in 2015:

How many new units should be added to the market?

One of the main concerns in the housing market right now is the limited housing inventory. The combination of limited homes on the market with high buyer demand for housing pushes prices upward. Indeed, as we already mentioned, three out of four counties issued fewer building permits in 2015 compared to 2000.

The question is how many new units should be added additionally to the market in order that supply meets demand? Assuming that the number of building permits in 2000 was enough to meet people’s[4] demands, we calculated the number of new housing units[5] that should be added additionally if needed based on the population in 2015.

Select a State and County:

While the latest available annual data refers to 2016, we looked at the most recent activity of the counties, which are requested to report monthly[6]. Comparing the number of new housing units authorized by building permits between January and March of 2017 and the same period in 2016, we found that 54 percent of the counties experienced gains. Thus, new residential construction seems to get better in 2017 and, thus, to slow down home price gains. Based on NAR’s forecast, it is estimated that new home prices will increase 1.9 percent in 2017 while prices rose by 6.7 percent last year. Similarly, existing home price increases are forecast to slow, but only slightly, to 5.0 percent from 5.1 percent in 2016.


[1] Source: U.S. Census Bureau.

[2] 2,138 counties were included in the study. These counties had at least 10 building permits issued in 2015.

[3] Based on the construction activity in 2,138 counties.

[4] Population 16+ years old in 2015.

[5] Permits needed (2015) = ((permits issued in 2000) x (population 16+ in 2015))/(population 16+ in 2000)) – (permits issued in 2015)

[6] Monthly statistics are obtained by directly cumulating the data for all places in the county that

are requested to report monthly (743 counties). Annual statistics are obtained by cumulating data for all places

in the county, both monthly and annual reporters.