What Are Building Permits?
Building permits are approvals for construction of new and existing privately owned homes. The U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD) release a monthly report on building permits for new homes, which investors and analysts focus on to gauge economic activity. The New Residential Construction report also includes data on housing starts and housing completions.
The Census Bureau and HUD collect data for the Monthly Building Permits Survey from 20,000 permit-issuing places across the country—typically at the local and county levels and based on the Census Bureau’s nine geographical regions. Of that number, the bureaus says there are about 8,400 permit-issuing places across the country that each issue an average of at least 6 permits per year and represent about 99 percent of the yearly total of new residential housing units authorized.
Building permits, like housing starts, are among the oldest type of data collected on the construction of new homes, going back to 1959. The collection period for the data lasts from the first day after the reporting month until the seventh working day of the following month. For example, for January housing starts, the survey collection would begin on February 1.
After permits have been approved and issued, contractors begin construction on homes, and these are counted as housing starts by the Census Bureau and HUD. Homes that have been completed are counted as housing completions. Building permits sort of represent the gross figure for new residential construction—not all building permits approved translate into newly built homes, and not all homes being constructed are completed.
Why Are Building Permit Data Important?
Building permit data are used to evaluate whether there’s demand for building new homes, and that information is used in analyzing the growth of the economy. Interest rates and inflationary pressures are among the factors that can influence building permits, and economists view building permits as one measure in determining whether the economy is contracting or expanding. The Federal Reserve taking a tighter monetary policy stance to curb inflation, for example, might compel property developers to hold back on plans for new construction and would consequently pare applications for building permits.
While building permits demonstrate a developer’s willingness to build homes, housing starts are the more important data in the New Residential Construction report because they show realized construction.
Below is a graph of building permits from 1959 to mid-2022. The data are roughly proportional to housing starts. Data show that after periods of recession, building permits typically increase.
The Conference Board, a think-tank that is supported by more than a thousand member-companies worldwide, incorporates the data into its index of leading economic indicators. The data are also helpful to the Fed in analyzing economic conditions both nationally and regionally.
When Are Building Permits Released?
Building permits are released around the middle of each month, on the 12th working day, at 8:30 a.m. ET by the Census Bureau and HUD. The formal title of the press release is Monthly New Residential Construction, followed by the reporting month. The two agencies also release data on a quarterly and annual basis, and previously released data are sometimes revised and updated.
