Data 101: Why tracking building permits makes sense

Posted on November 2, 2017 by Jana Stupavsky, Emma Fairbanks, Dr. Reid Cummings
Jana Stupavsky, Emma Fairbanks, Dr. Reid Cummings

What are building permits? Building permits are issued by local governments, essentially authorizing a property owner to build a new structure or to make improvements to an existing structure. Regulations vary from city to city (or rural area), but generally when applying for a building permit, one must provide a construction cost estimate, set of construction plans, and the layout of the construction project. After the local building inspector office reviews the application and all the documents, they determine permit fees (typically a percentage of the construction cost estimate) and the property owner can obtain the permit after the fees are paid. Only then is the owner allowed to start the construction.

What do we track? Residential and commercial constructions (i.e. single family homes, apartment complexes, shopping centers, restaurants, repair shops) are the two most common types of construction that take place in any given city or municipality. Therefore, the University of South Alabama South Alabama Center for Business Analytics, Real Estate, and Economic Development (CREED) tracks data for both - residential and commercial building permits with focus on new construction. We track two things with each type of permit on monthly basis:  

  1. Dollar value of construction, which is essentially a cost estimate for each construction project.
  2. Number of permits issued

What does this data reveal? Dollar values attached to construction cost estimates help paint a picture of how the local economy will perform in the near future. This is because these dollar amounts indicate how many construction materials will be purchased as well as how much construction-related hiring will take place soon. Therefore, local governments can get a better understanding of how much additional tax revenue will be coming in through construction materials purchases (sales tax), workers income spending (sales tax), and buildings/homes construction (property tax). Suppliers of the construction sector can also get a good idea of the magnitude of business opportunities eventually coming into the area.

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