November 14, 2018
For other reports and posts related to our November 2018 Fiscal Outlook, see here.
New construction is a key driver of growth in assessed property values and, in turn, property tax revenue. More construction leads to higher assessed values. Below we discuss the details of our residential and commercial construction estimates used for our assessed value forecast.
Building Permit Estimates. Throughout 2017 and into the first quarter of 2018, the value each quarter of permitted construction hovered around $15.5 billion ($8.5 billion residential and $7 billion commercial). The second quarter of 2018 saw a significant uptick in residential and commercial permits. Total permitted construction jumped 40 percent relative to a year prior. In the third quarter of 2018, however, permits returned to the levels seen prior to the second quarter uptick. Moving forward, we expect permits to continue on at a level consistent with third quarter 2018, with no growth or modest declines through 2020.
How Do We Forecast New Construction? Our forecast of permitted construction in California is an aggregation of permit forecasts for each of the state’s counties. Our method of forecasting the value of permits issued in each county has two main components:
Our final permit forecast combines the results of the economic model and the trend model into a single forecast.