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PURPOSE: The purpose of this service is to provide timely and affordable information about current conditions and prospective changes in the economy and demography of the nation's construction and real estate markets. Such information is becoming increasingly important for builders, suppliers, developers, appraisers, real estate firms, insurers, and investors. We believe this service adds valuable insights into the dynamics of local markets not obtainable from other sources. CONTENT: The service, as illustrated in the Construction/Economic sample printout, includes five printout sheets for each MSA: (1) Overview of Economic and Construction Trends highlights recent history and the projected outlook for the economy and for the construction permit activity1 of the MSA. The table Construction Permit Indicators shows annual averages of the number of housing units authorized and of the value of residential and nonresidential permits-in constant 1996 dollars2-for two historical and two projected periods. The table Economic and Demographic Indicators shows the actual and projected values of ten economic indicators for selected dates from 1980 to 2010. The top two graphs show actual (heavy line) and predicted (dashed line) value of residential and nonresidential construction permits. The predicted values of construction activity are "baseline" predictions derived from specific economic and demographic indicators for each year by means of econometric models3 estimated for the different categories of construction. The bottom graph shows annual changes in jobs and in population. (2) A. Indicators of Construction Permit Activity provides actual historical data of the volume of construction permits for the years 1980, 1985, and 1990-2002e for new housing construction and for the years 1980, 1985, and 1990-1995 for other categories of construction, and the predicted baseline of construction permits for the years 2003-2010 and 1996-2010 respectively. B. Supply Indicators. The four indicators of supply shown in the lower right are based on past differences between actual permits and the baseline predictions of permits for the period 1980-2001 for new housing construction. The first column shows the ratio of actual to predicted permits, both totaled for the historical period. Ratios greater than 1.0 suggest possible excess supply and ratios smaller than 1.0 suggest possible shortfall. The second column shows the difference between the actual and predicted permits cumulated over the past years for which annual data are now available. It should be noted that, in order to save space, the dollar amounts in the second supply indicator are shown in millions while the annual amounts elsewhere on the page are shown in thousands. (3) Economic and Demographic Indicators provide historical and projected annual data for ten indicators which are important for predicting the different categories of construction activity. Historical data for the years 1967-2002 and projections for the years 2003-2010 were obtained from the database update of the NPA Data Services, Inc. (4, 5) Permit Activity by Category of Construction ,actual and predicted, is shown graphically in the last two sheets for four indicators of residential and of nonresidential construction each for which baseline estimates were made. (Totals for new housing, and for residential and nonresidential construction were derived from the underlying baseline estimates). Actual permits are shown for the years from 1980-2002e, for new housing construction, and 1980-95 for other categories of construction. The predicted baseline permits are shown for 1980-2010 for all categories of construction. Comparisons of actual and predicted levels of construction will permit users to judge the predictive power of the estimated baseline relationships and to evaluate the projected trends for any MSA. NOTE: Beginning January 1996, the Bureau of the Census discontinued reporting of residential demolition and additions and alterations permits and of all nonresidential permits. It is possible that these reports will be resumed. We continue to report projections for all twelve categories of construction based on our recently updated historical data for 1980-2002 and projections of the economic and demographic variables for 2003-2010. The data for new housing construction continues to be reported regularly, and we have updated our models for new housing with the data for 1980-2002. The models for the discontinued series are still based on the 1980-95 period, but the economic and demographic data is from our latest Regional Economic Projection Series update. If the discontinued reporting is not resumed by the Census Bureau within a reasonable time, we will develop new models for this service based on alternative information and modify the service accordingly.
1 Because most construction in the U.S. requires local permit authorization, permits are a good measure of construction activity, especially for metropolitan areas. During the period 1980-98, the number of housing units authorized by permits represented 91 to 99 percent of all U.S. housing starts. The value of permits covers the direct estimated cost of construction. During the 1980-95 period, the value of permits represented an average of 72 percent of the value of construction of new housing units put in place, 41 percent of industrial construction, and 47 percent of office buildings construction value put in place. 2 Current reported values of building permits were converted to 1996 dollars by means of the U.S. Department of Commerce chain-link type price indexes for private residential construction and for private nonresidential structures, with 1996=1.000. To convert the 1996 based values to 2002 prices, multiply the new residential permit values by 1.227 and the nonresidential values by 1.273. 3 Econometric models, relating economic and demographic factors to permits in different construction categories, were estimated with the data for all MSAs using the base periods 1980-2002 for new residential units and value per unit, and 1980-1995 for all other series, respectively. These models were then used to calculate the predicted values of construction permits for each year from 1980 to 2010 using the latest historical and projected data from the databases of the NPA Data Services, Inc. The baseline predictions generally correspond rather closely to actual permits for most MSAs. However, annual estimates are subject to short-term variations. Also, in some MSAs there are consistent deviations from the baseline estimates which may be due to other-perhaps structural-factors not included in the models. The base period 1980-1999 and 1980-95 include all stages of the construction cycles. In most cases, the "baseline" predictions derived from the models represent estimates of construction applicable to an average or "normal" year of the cycle. For office buildings, however, the cumulated construction levels exceeded the sustainable demand during the entire base period. An analysis of increased vacancy rates indicates that nationally, by the end of 1995, 14 percent of office building construction of the base period was accumulated in vacant space inventory. Therefore, "adjusted baseline" values, derived by reducing the formula predictions by 14 percent, are provided for office buildings in this service. The estimates of dollar value per housing unit authorized now derived with the data for the period 1991-2002 offer better predictions for recent and probably also for future years than the estimates based on the whole period 1980-2002. Because of the volatility of annual changes in economic data for single years, some negative baseline predictions were calculated. All negative baseline predictions were set at zero.
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