Examining Recent Patterns in Residential Building Permits

The explosion of home values during and after the COVID-19 pandemic has worsened housing affordability across the U.S. In May and June 2024, housing affordability stood at its lowest point since 2006, as measured by the Atlanta Fed’s Home Ownership Affordability Monitor. One possible way to improve housing affordability is to increase the supply of housing. The presence of low housing inventory, low vacancy rates and high demand for homes contributes to rising property values, which are signals that more homes need to be built. In this blog post, we examine recent patterns in the authorization of new housing construction.

Building Permit Data

We used the Building Permit Survey (BPS), collected by the U.S. Census Bureau, as the source of our construction data. This survey provides national, state and local statistics on the number and valuation of new privately owned housing units authorized by building permits in the U.S. Building permit data are collected from individual permit offices, most of which are municipalities. We also included population data on a national level, as well as for all the metropolitan and micropolitan statistical areas of the U.S. In this post, both areas will be described as “urban areas.”

Authorized Building Permits across Time

First, we examined residential building permits adjusted for population since 1980 across the U.S. in its entirety; that is, authorized permits divided by the population. We looked at permits for both single-family homes and multifamily homes.For multifamily homes, this includes properties with up to five residential units. As shown in the figure below, single-family homes are more often authorized to be built in the U.S. when compared with multifamily homes.

Let us now look at the total number of housing permits. As expected, the number of authorized building permits per 1,000 people fell during the financial crisis of 2007-09. Then this number started to grow modestly after the financial crisis up until the COVID-19 pandemic, during which this number again started to trend downward. We can see that overall building permits for residential construction have never fully recovered to pre-2007 levels.

U.S. Residential Building Permits Adjusted for Population, 1980-2023

SOURCES: Building Permit Survey and authors’ calculations.

Building Permits across Urban Areas

Next, we delve further into the data to see how housing permits relative to population varies with geography. The figure below shows the number of authorized building permits per 1,000 people for urban areas throughout the lower 48 U.S. states.Alaska and Hawaii are not included on the figure of the U.S., but the two states were included in calculating the ratio of building permits to population. Here we examine just the year 2023. Lower numbers indicate that there are fewer building permits per person, and thus more “underbuilding.”Note that our notion of underbuilding means that there is a low number of building permits per unit of population. It may be an appropriate amount of planned new housing if an area is declining or stagnant. From this we can see that the most extreme underbuilding (less than or equal to 2 permits per 1,000 people) is concentrated in major population centers on the West Coast, the Northeast and some of the Great Lakes areas of the Midwest. However, most metro areas in Arizona, Florida, and Texas saw building permits at levels greater than 6 permits per 1,000 people.

Residential Building Permits per 1,000 People by Urban Area: 2023

SOURCES: Building Permit Survey and authors’ calculations.

NOTE: Areas without coloring represent locations that are not considered part of an urban area.

Cities with the Lowest Building Permits Per Capita

In the table below, we list the metropolitan statistical areas (MSAs) that have the lowest number of authorized building permits per capita. These MSAs are grouped by population. Although the map shows many of the areas with low  permits per capita are concentrated on the coasts, the table reveals MSAs with the lowest building permits per capita can also be found in the Midwest’s Rust Belt.

Takeaways

This analysis has revealed that building permits remain at levels that are around the historical average (1980-2023) of 4.9 per 1,000 people, although slightly lower than they were in the 1980s and 1990s. Relatively low numbers of building permits are also found in all regions of the country.

The new construction generated by building permits is just one aspect of supply, as existing homes  also contribute. Equally important is housing demand, which, together with supply, influences overall housing prices in a given market. While housing permits aren't the whole picture, adjusting this indicator for population can highlight areas where new investments or relaxed zoning regulations might spur more housing construction.

Notes

1. For multifamily homes, this includes properties with up to five residential units.
2. Alaska and Hawaii are not included on the figure of the U.S., but the two states were included in calculating the ratio of building permits to population.
3. Note that our notion of underbuilding means that there is a low number of building permits per unit of population. It may be an appropriate amount of planned new housing if an area is declining or stagnant.