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Stephan Whitaker |

Research Economist

Stephan Whitaker

Stephan Whitaker is a research economist in the Research Department at the Federal Reserve Bank of Cleveland. His current work includes research on housing markets and studies of state and local public finance.

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10.25.10

Economic Trends

New Residential Construction Activity in Fourth District Metro Areas

Stephan Whitaker

The number and value of building permits in the Fourth District show the glimmer of an upturn in local housing markets. This trend is worth watching both for the employment and economic activity it represents, and as an indicator of consumer confidence. From 2000 to 2005, each metropolitan statistical area (MSA) in the Fourth District had a steady or moderately growing annual count of new residential units, and the total value of those units was rising. From 2006 to 2009, both of these metrics plummeted across the region, in step with the national construction slowdown and the economy-wide recession. An upturn in new construction represents consumers’ and builders’ sense that the regional economy is improving enough to support new houses, condos, and apartments.

The Census Bureau collects counts and valuations of new construction permits issued each month. The data are collected from every municipality that has a permitting process, and they are aggregated at the metropolitan level. The figures reported here cover all residential units, including those intended for rental. The most recent data available are from August 2010. When I refer to a year’s data below, it is the sum for the 12 months ending in August of that year.

To put the recent figures in perspective, we can review the past decade’s data in detail. From 2000 to 2005, the growing regions of Columbus and Cincinnati issued permits for an average of 14,915 and 12,779 new units annually. The permit requests began to decline before the recession, dropping in both metropolitan areas to below 4,000 units in 2009. The Cleveland and Pittsburgh metropolitan areas, which have similar-sized populations but no population growth, averaged 7,249 and 6,399 units, respectively, between 2000 and 2005. Cleveland experienced a decline of 72 percent and Pittsburgh a decline of 66 percent in their 2009 levels. Permits issued in Akron and Toledo in 2009 were less than one-fifth of the 2000-2005 average, while Lexington managed to reach 40 percent of its earlier level.

In the smaller metro areas, the trends are very similar albeit at lower levels. Youngstown and Canton averaged over 1,200 and 1,100 permits during the early part of the past decade. Their permit numbers in 2009 were down to 17 percent and 29 percent of these averages respectively. Wheeling, Lima, Huntington, Parkersburg, Mansfield, and Erie all issued permits for less than 100 units in 2009. This represents declines between 26 percent, for Erie, and 94 percent, for Wheeling.

Focusing on the 2010 data, we can look for an upturn. Columbus, Pittsburgh, Erie, Parkersburg, Huntington, Weirton, and Wheeling all increased their permits 19 percent or more in the most recent 12 months of data. Numbers in Cincinnati, Cleveland, Toledo, Dayton, Canton, and Mansfield were steady at their low levels. In Lexington and Youngstown, new construction appears to continue to decline, with the most recent 12-month total (September 2009–August 2010) being less than 75 percent of the previous 12-month total (September 2008–August 2009).

Permits Issued for Residential Units

Metro area

9/2008–8/2009

9/2009–8/2010

Change (percent)
Columbus
3752
5017
34
Cincinnati
3394
3374
−1
Cleveland
2149
2116
−2
Pittsburgh
2580
3264
27
Lexington
2008
1408
−30
Akron
549
476
−13
Toledo
776
665
−14
Dayton
733
778
6
Youngstown
320
233
−27
Canton
334
306
−8
Erie
220
456
107
Mansfield
51
46
−10
Parkersburg
95
125
32
Huntington
28
37
32
Weirton
16
19
19
Lima
14
47
236
Wheeling
2
3
50

Source: U.S. Census Bureau, Haver Analytics.

At least as important as the number of units permitted for construction is the value of those units. Obviously, there is a wide range of types of housing, with higher-value homes demanding more labor and materials, and allowing larger margins. The number of permits issued for units in most Fourth District cities did not display a run-up in the mid-2000s. However, the total value claimed on the permits increased dramatically if we compare 2004-2005 to 2000-2001. In just a few years, inflation-adjusted permit values for Columbus and Cincinnati were both up 22 percent. Pittsburgh’s and Canton’s total values increased more than 15 percent. Toledo and Lexington did see a rise in total units, and the permit values tracked these, increasing 42 percent and 63 percent, respectively. Of course, all Fourth District metro areas are now below their 2000-2001 baseline, with most down by more than 60 percent.

Comparing values in the most recent, distressed years gives some reason for optimism. Among the large metro areas, total values for permits issued are up in every metro area except Lexington. In the smaller metro areas, six of the nine display higher total permit values in the last 12 months, relative to the 12 months just preceding.

Every recovery must start somewhere. In the Fourth District, it appears residential construction is starting to climb out of the deep trough it entered during the recession. Those who rely on the industry directly or indirectly, and those who look to it as an indicator, all hope to see an accelerating upward trend and a return to normal, pre-recession levels.