For market analysis, permits authorizing additional new housing units are most directly useful as which evidence?
Correct Answer
D) Potential future supply, subject to timing and completion
Permits for new housing units describe authorized potential supply. Distinguish authorization, starts, construction and completions, and investigate timing and completion probability. Renovation permits or an authorization count alone do not establish added available units or current sales velocity.
Why This Is the Correct Answer
Option D is correct because permits for new housing units authorize construction that may add to future supply. Since some authorized units start late or are not built, the appraiser should consider timing and completion when using permit data.
Why the Other Options Are Wrong
Option A: A direct index of current transaction price levels in the area
Option A, a direct index of current transaction price levels in the area, is wrong because permits count authorized construction, not sale prices. Price levels come from transaction data.
Option B: A count of current closed-sale absorption
Option B, a count of current closed-sale absorption, is wrong because permits measure authorization to build, not how many homes buyers are purchasing.
Option C: A complete measure of existing housing condition
Option C, a complete measure of existing housing condition, is wrong because permits for new units say nothing about the condition of the existing housing stock.
Permit is permission, not a house
A permit gives permission to build; the house may come later or not at all.
How to use: Use this when a question asks what building permit data indicate.
Exam Tip
Choose answers that treat permits as potential future supply and that recognize timing and completion uncertainty.
Common Mistakes to Avoid
- -Counting permits as completed homes
- -Using permits to measure sales velocity
- -Including renovation permits as added units
Concept Deep Dive
Analysis
This question tests what building permits for new housing units indicate. Permits show authorized potential supply, which is earlier in the pipeline than starts or completions. Their usefulness depends on whether and when the authorized units are actually built.
Background Knowledge
The supply pipeline moves from authorization (permits) to starts, construction and completions. Census tracks units authorized but not started, showing that a permit does not by itself mean a unit will be built soon.
Real-World Application
An appraiser reviewing a growing suburb finds permits issued for several hundred new homes. She notes the potential added supply but also checks how many permitted lots have actually started construction.
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