The Expert Podcast

Building permits are an incredibly valuable and powerful source of data for contractors, for consumers, even for economic predictions about the overall economy beyond just real estate. We're going to take a look at some data from building permits but also what's being done about making building permits easier and more streamlined. If you're a builder or contractor, you probably run into delays and bureaucracy with your building permits, and we're going to talk about some things that are in the works and even things that are available right now to make that process more tech-oriented and easier to do.

First of all, what does the data show for the real estate market? Well, this was from April, which is after the interest rate rise already happened, and the next one will be out probably here in a few days and we'll take a look at that data as well. But new home building permits: 1.8 million. That's in line with what it has been for the last year and a half. If you look at the chart, you know, for a long period of time from 2017 really until 2020, it was under 1.5 million — 1.2, 1.3 — and then after you had a drop off because of COVID in early 2020, it bumped up and now you have building permits always in this 1.5, 1.6, 1.7 or 1.8 million range. And that's what it is now, 1.8 million building permits. Housing starts about the same. Housing completions are a little less because there's been delays as we all know for getting materials, lumber, labor, equipment to the job site.

One particular example we'll look at is Colorado Springs. Home construction rose in May despite higher mortgage rates. Look, this is cherry picking one city — you can find some cities where home construction went down — but overall, as you can see, it's going up. Completions are the only line here that's more stable, that's green. Think about it, this green line's ups and downs always traded in the same range between 1.2 and 1.5 million completions, and that's where it is now, 1.295. We're almost right in the middle of those two categories. But starts and permits have gone up all of this time from 2017 to 2019 early 2020 — they all kind of ran together between 1.2 and 1.5 million — and all of a sudden, you had more housing starts and permits but the same number of completions. That means there's a lot of backlog of homes that are not completed, mostly because of labor and also some of it has to do with permit delays.

For the same reason that there is labor shortage within the construction industry, there's also a labor shortage within government. So some of these permits are taking a long time to get completed. We'll look at some technology that's helping that here in a minute. Here's another article from Reuters: U.S. housing starts rebound sharply in February, building permits fall. And they fell a little bit, but this is a little bit overstated of how much that fall is. And here's what we're talking about — this has to do with the market in North Carolina. Permits for new homes increasing. This was June 3rd, just a couple days ago.

But building process filled with delays. And why is that? Shortage of homes — that happens everywhere. People are trying to buy houses, time frames are probably the longest we've seen. We need houses built faster than we have. Owner of a construction company: part of the issue they face right now is everybody's busy, right? A lot of people are understaffed, and that goes all the way from permit departments to every municipality to engineers to architects to surveyors. So the permit process is part of this delay.

Wake County, North Carolina is requesting four additional staff members to assist with permits. Other municipalities had similar issues. It's difficult to find somebody to replace people that leave because you have to do training. Look, being a permanent inspector is not something that you learn overnight. You have to be certified and you have to have history and experience. It's a very complex issue to know how to do permit approvals.

Single-family home permits are up 22 percent in that county. That's a big deal. 22 percent is a lot higher volume, and if you don't have extra people to sign off on the permits, it's going to delay that project. And here's what we've been talking about: they're not really seeing any dip in homes or construction. If anything, we're seeing an uptick.

Permits in the county take 36 hours or two weeks. That's a pretty big range. If you're a builder and you have an intermittent permit for let's say a rough-in of electrical and you don't know if it's going to take 36 hours or two weeks, when do you hire your sheetrockers? If you hire them to show up in three days and you have your permit in 36 hours, great — permit's done, rough-in electrical is signed off, you start doing your sheetrock. But what if you have them come in three days and the inspector hasn't signed off on it yet? Now you have to send them away and maybe they have another job, maybe you're not going to get them back for two weeks or three weeks or a month. Or you could just say, you know, worst case scenario it's going to be two weeks, look sheetrockers don't show up for two weeks. Now the permit guy shows up 36 hours later, signs off on your permit. Now your job site is shut down for two weeks while you're just waiting for a permit to get done. Very inefficient process.

So if you're a general contractor used to planning a lot of efficiency, a lot of very tight timelines, if that permit doesn't get done or it gets thrown off — or what if they show up in two weeks and it doesn't get approved? Maybe you missed something or maybe the electrician didn't use the right gauge wire or too many devices in a box or not enough cubic inches of space for the wires in a box. Now you have to wait another two weeks.

What's being done about it? Well, in Phoenix, they're trying to streamline their permitting process. They're putting in some new technology — it's called Shape Phoenix for single-family residential permit categories. It is an electronic system where you can submit applications, check status, communicate with staff, request meetings, do all these things. It'll be available 24/7 for residential and it'll take away a lot of the manual labor that people have to do in the office and make it more electronic, even in the public sector.

Even in the private sector, there's a company that's out there that's trying to create technology that'll work anywhere. They've raised four million dollars to shorten the construction permitting process from months to days. Now this is a tricky part — there are thousands and thousands of different permitting jurisdictions. Different counties, cities, states all have different permit processes. Sometimes there's different layers: you might need one permit from the city for, let's say, a utility hookup, another one for the county for something else, sometimes you need a state permit for DEQ for septic — who knows. You might need multiple layers.

So having one system that can interface with thousands of different jurisdictions is tricky. Right now, they're working mostly in Texas. At some point, they may be in other parts of the country. Permitting is a very underappreciated part of the building process. Becoming an expert on permit efficiency can help you as a builder.

If you are a consumer looking to do your own work, you can do self-permits, but that'll be a very interesting exercise in bureaucracy. More importantly, if you look at that permit data even if you are not in the current process of building a home, remodeling a home, putting an addition on a home, if you just keep an eye on the permits in your county or city every week, you'll get a good idea of what's happening, what's being built, are the new subdivisions, are the new commercial projects. And that might be of interest to you as a business owner, even as a consumer. Knowing where the market's going, who's building a new house, did one of your neighbors put in a permit for an addition? So permit information is valuable.

It's usually not the most exciting reading in the world, but you don't have to read the whole thing, you can just get an idea of what's being done in your area and also what the volume is. If you see permit volume going up, it means your area is hot, it's up and coming.

Let us know what you think in the comments. What's your experience been with permit departments, zoning departments, and we'll see in the next video.