Estimating the Effect of Residential Sales Prices on Building Permits

This paper addresses home sales prices’ impact on residential building permit authorization in South Carolina’s Greenville and Richland counties amid the COVID-19 pandemic. The estimation uses a comprehensive data set of the housing markets in both counties for 2016 to 2022, incorporating 88,098 home sales. The analysis exploits the variation in sales prices of homes to analyze the sensitivity in the supply of permits to builders through an instrumental variables approach. Using two instruments, violent crimes and household income, the effect of sales prices on the supply of building permits is positive and statistically significant. Included in the first-stage regression are various housing characteristics that influence the price of any particular home. In addition, the effect of population increases on the sales prices of homes and authorization of building permits is analyzed. The findings show that population increases significantly affect the authorization of building permits for residential construction. The results for the effect of sales prices on building permits are robust to various specifications.