DEFINITION of 'Building Permits'

Building permits are a type of authorization that must be granted by a government or other regulatory body before the construction of a new or existing building can legally occur. The U.S. Census Bureau reports the finalized number of the total monthly building permits on the 18th working day of every month.

BREAKING DOWN 'Building Permits'

The monthly building permit report is closely watched by economists and investors alike. Since all related factors associated with the construction of a building are important economic activities (for example, financing and employment), the building permit report can give a major hint as to the state of the economy in the near future.

The type of build permits issued can be indicators of growth or stagnation in particular segments of the economy. For example, an upsurge of commercial building permits often indicates businesses are expanding or new companies are a being established. If there is a rise in building permits for more warehouses, it can be a sign that commerce will increase in the coming years.

What Building Permits Reveal About the Economy

The issuance of residential building permits can be a barometer for consumer confidence and solvency. The U.S. Census Bureau conducts surveys of building permits for new housing units with data available for monthly, annual, and year-to-date intervals. The surveys cover the nation and are divided by region, state, metropolitan area and county.

Building permits for new housing can run the gamut from multifamily units to single-family construction. A general increase in building permits might indicate a need for more homes. A rise in building permits specifically for single-family homes can indicate that more citizens have accumulated enough finances to afford their own residences.

The process of procuring a building permit is a way for governments to enforce standards in construction. When a developer or property owner wants to build a new structure or modify an existing one, they retain the services of a licensed professional to file plans with the appropriate regulators and architects, and engineers typically draft and submit these plans for approval. The design for the proposed construction along with the expected building materials will be reviewed by authorities to ensure they adhere to building codes.

The expected durability and stability of the proposed building are assessed when plans are reviewed. Municipalities may have stringent building codes due to external factors that can affect the resulting construction. Areas that are prone to earthquakes might require all construction to be able to withstand a certain amount of tectonic activity. Buildings in areas known to experience tornadoes likewise could mandate that only materials tested against high winds can be used in construction. Once regulators are satisfied with the plans, building permits may be issued to allow construction to commence.

RELATED TERMS
  1. Building Activity Indicators

    Building activity indicators are economic reports that provide ...
  2. Housing Starts

    Housing starts represent a metric that shows how many new residential ...
  3. Floor Area Ratio - FAR

    Floor area ratio is the total square feet of a building divided ...
  4. Construction Loan

    A construction loan is a short-term loan used to finance the ...
  5. Housing Unit

    A housing unit is one unit of a house, apartment, mobile home, ...
  6. Construction Interest Expense

    Construction interest expense is interest that accumulates on ...
Related Articles
  1. Investing

    Home Improvements That Require Permits

    Many home remodeling projects require permits, which the homeowner is responsible for. Here is a list of projects that may require permits.
  2. Personal Finance

    8 Signs Your Neighborhood Is On The Upswing

    If you were hard-hit by the real estate crash, you may be wondering when things will get better for you. We show you how to keep tabs.
  3. Investing

    Why Building a House Is So Expensive Now

    Building a house can be very costly, so it’s best to understand all the factors that go into the equation before proceeding. Here’s what you need to know.
  4. Personal Finance

    Top 10 Fastest Growing Industries in the United States

    Six of the 10 fastest-growing industries are directly related to new residential construction.
  5. Investing

    What Makes Energy-Efficient Buildings Pay Off for Investors

    The pros and cons of investing in energy-efficient buildings: higher upfront costs; bigger long-term savings.
  6. Personal Finance

    Getting A Mortgage When Building Your Own Home

    It's much harder to get a loan when you're building a home, not moving into one. Here's where to look and what to expect.
  7. Insights

    The Canadian Economy At A Glance

    The 12 economic indicators for Canada are described here and together they provide a comprehensive picture of their economy.
  8. Investing

    Floors, Walls, Windows & Roofs: Best Buys in Building Products

    The housing, building and remodeling sectors have been strong, buoyed by a steady economy and rising confidence. Meanwhile, the unfortunate damage from recent hurricanes and ongoing wildfires ...
  9. Investing

    3 Reasons to Invest in Multi-family Real Estate

    Here are three reasons to consider investing in multi-family real estate.
Trading Center