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.

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