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December 10, 2018 Biz Money

Building permits on the rise — but can't touch pre-recession numbers

Maine is on pace to record a post-recession high in building permits. At the current rate, Maine would have 4,711 by year's end, topping last year's 4,607 building permits issued, according to the U.S. Census. Even so, that's below pre-recession levels.

Through October, the latest month available, there were 3,926 permits issued. Most are for single-family homes.

Yet the pace is still far from matching pre-recession levels. In the past 15 years, the number peaked in 2005, with 8,747 building permits issued. The low point was 2011, with 2,299.

Why is the pace so dramatically off that of 2005?

Demographics are partly to blame, say two economists we talked with.

“My sense is the demographics are different from before the bust,” says Chuck Lawton, former chief economist for Planning Decisions Inc.

The population is older. Retirees are downsizing and going into condos. Lawton said a building boom that stretched from the 1990s into the early 2000s was driven primarily by families with young kids. That demand created suburban growth in Scarborough, Cape Elizabeth and Cumberland, among other Portland-area markets — but it also took time for the new housing to be “absorbed.”

“The trend you've noticed isn't unique to Maine. Nationally, building permits are well below peak levels, too. Of course, there are regional variations within the state as well — Cumberland County has caught up more, for example,” said Amanda Rector, the Maine state economist.

“Demographics are probably the largest contributing factor in Maine. Building permits tend to increase when new household formations increase: Young adults moving out of their parents' homes and into their own homes. Maine has relatively few young adults, thus less need for new homes. We've seen increased population growth and in-migration the past couple of years; if that trend continues, we may see building permits continue to increase as well.”

She cites another factor: Millennials across the country have delayed household formations longer than previous generations. “Part of this is likely in response to the Great Recession and the slow recovery; part is also likely a response to the increased student loan debt burdens shouldered by this generation,” she said.

Future housing demand may be focused more on apartment buildings, both economists said. “[Today] there aren't the families seeking and able to afford [new] homes,” Lawton said. “Now school enrollments have dropped off and there's an absence of families with kids… The nature of the demand is from empty nesters and smaller families.”

Lawton said pricing and restrictions may also play a role. Even with a lack of housing, potential developers are facing resistance in certain areas, a sense that there's been enough development — in other words, NIMBY.

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