New Construction Permits

40 years of permits

Analyzing trends in permit approvals in Washington State

Abstract / Executive Summary  

This report seeks to understand what drivers may be impacting permitting trends for residential housing units. This is a complicated undertaking since there are many variables at play when housing developers seek to build new housing units. However, it’s worth noting the economic health of the country and state – as well as cumbersome regulations – dictate permit activity rates.

Background 

The Building Industry Association of Washington (BIAW) partnered with the Washington Center for Housing Studies to analyze the historical data available for permits in the state. This report will be the first installation of a two-part series that seeks to identify permit trends for the state and permitting jurisdictions throughout the state.

To keep information up-to-date, the center will update permit data as it becomes available from the U.S. Census Bureau.

View > Permit Tracker

Methodology 

In this report, the methodology is fairly straightforward. We pulled all data from the State of the Cities Data Systems (SOCDS) Building Permits Database and compiled visual representations. By looking at the trends of permitting over the last more than 40 years, we’re able to draw some conclusions about why increases or decreases may have occurred. We will offer those insights in later sections of the report.

Results

In the last 43 years, 1.7 million permits were applied for and authorized.

As seen in the graph below, it is evident that recessionary periods have a drastic impact on permit applications and approvals. As expected, the Great Recession in the 2008-2010 timeframe drove a much larger decrease in permit applications and approvals than other recessionary periods.

In contrast, the COVID-19 pandemic drove more households to buy homes and increased demand for larger living spaces (in such a short amount of time) than other time periods illustrate. This could potentially be due not just to the Stay-at-Home orders but also tthe stimulus checks disbursed to many American households. Many households used stimulus checks to pay off debt, resulting in better credit scores and lower debt-to-income ratios and increasing the number of households eligible for home loans.

However, since the pandemic, we’ve seen permit applications and approvals decline. This trend is likely a result of the Federal Reserve raising interest rates, the stimulus funds being depleted or saved by households and increased regulations on the homebuilding industry — specifically as it relates to the cost of building housing under the Washington State Energy Code.

This graph tells us that if we’re to build one million more homes in the next twenty years, as the Department of Commerce suggests we should, policymakers will need to make more headwind on reforming the most costly processes of building housing units.

In the next two graphs, we can see a new trend emerging: single-family permits are at near-Great Recession levels in present day, whereas multi-family permits are at an all-time record. These graphs illustrate the state is moving toward more dense housing options, as buildable land continues to be in short supply. With the absence of a robust condominium market, it appears the current trajectory places a preference on rental properties rather than ownership opportunities.

While the intent is commendable, this shift toward more density and less ownership options will likely continue to widen the gap between low- and high-income wage earners in the state. Because homeownership is a key determinant in large disparities in household net worth, we can expect our BIPOC communities to continue to be limited in their economic advancement in the state.

 

In the last exhibit, we can see how many of the multi-family projects approved were small and large scale. This is of particular interest to policymakers, as a movement toward "missing middle" housing has emerged due to the housing affordability crisis. The data suggests that there's been a long history of 5+ multi-family units being built over duplexes, triplexes, and quadplexes. Historically, duplex, triplex and quadplex units have been constructed at even rates -- though at a rate of about ten times less than 5+ units.

Interestingly, since the Great Recession, we've seen a decrease in permit activity for 2- to 4-unit multi-family structures. We're building approximately half the units that were historically built in those segments now. Aside from the industry not fully recovering from the recession and large swaths of employees switching industries, this is also the same time period that Washington state really began adopting stringent energy codes. Therefore, the data suggests that the state's emphasis on reducing energy usage in buildings (RCW 19.27A.160) has had a direct result on smaller, affordable units being built. Instead, larger apartment buildings and single-family homes have been incentivized as an unintended consequence of green building codes.

Policy Recommendations 

The Washington State Legislature could fund a study to answer the following questions:

  • “Is the Washington State Energy Code achieving its overall goal of making homes more energy efficient at the expense of housing affordability?”
  • “Are homes built actually achieving the modeled estimated energy savings?”

The Residential Construction Council of Ontario released a new field study in March 2024. The results from this report were staggering, finding that energy use modeling software overstated the homes’ actual performance. This finding illustrates that modeling software cannot account for individual human and/or household behaviors as it relates to energy usage. Given this new information and general lack of field studies as it relates to energy codes, it would be beneficial for lawmakers to take a pulse on whether our state’s energy code is negatively impacting housing construction, while providing potentially limited energy savings for residents.

Conclusion

In summary, permit activity will need to increase if the state intends to reach its goal of adding one million new housing units. In 2023, permits authorizing new construction totaled 37,177. So far in 2024, there have been 5,210 permits issued for all residential units in total. Compared to the first two months of 2023, this is a decline of 1,036 permits. If we assume 2024 will perform similarity to the last three years (2021, 2022, 2023), then we can expect approximately 47,500 permits to be issued this year. If the current trajectory continues, we will be short on our 20-year goal by roughly half a million housing units.

Permit Tracker

References

 

Date of First Publication: April 12, 2024
Prepared by Andrea M. Smith, MPA

 

Copyright Washington Center for Housing Studies 2024. All Rights Reserved.
No part of this material or any research report may be copied, photocopied, or duplicated in any form by any means or redistributed without the prior written consent from the author and/or funding authority.

 

Disclaimer 

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