Washington sees decline in new housing permits for second straight year

For those who are looking to purchase a new home, you might have to wait, as housing permits have dropped in the state of Washington for the second consecutive year.

A new study of 384 metro areas by Point2, an international real estate search portal, found that permitting activity in Washington plummeted in 2023. Just 37,177 new housing permits were issued across the state in 2023, 25% fewer compared to the previous year. When narrowed down to just the Seattle-Tacoma-Bellevue metro area, that number reaches a nearly 36% fewer year-over-year drop in new home authorizations.

According to Washington law, permits are required for any new construction or when any structural changes are made to an existing building.

What does fewer housing permits mean for homebuyers?

Bellingham and Longview were hit the hardest with declines in housing permits at a whopping 44% and 48%, respectively.

This could spell serious trouble for potential buyers in these locales as it foreshadows lower inventory and higher costs.

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But not all cities saw a dramatic slowdown, according to the data. The city of Spokane was one of the few metros that was spared from a significant decrease at only 4%.

While Washington certainly isn’t the only state to see a decline in new permits it still fares far worse than the national average of 11%. In fact, Washington had the ninth sharpest decline in the nation at 24.5% according to Point2’s findings.

Why are housing permits declining?

So why are there fewer housing permits?

With the lack of housing on the market and a political focus on building more affordable housing, conventional wisdom suggests there would be more new construction, not less. Point2’s study highlights supply chain issues and rising loan rates for builders as two chief factors.

The study notes this creates a bit of a vicious cycle because “as both builders and home sellers become more cautious and keep to the sidelines to try to insulate themselves from the negative effects of rising rates and financial uncertainty, their withdrawal might negatively affect supply and affordability in the near future.”

However, the new year did bring some good news courtesy of a press release from the National Association of Home Builders in January:

“Mortgage rates well under 7% over the past month have led to a sharp increase in builder confidence to begin the new year. Builder confidence in the market for newly built single-family homes climbed seven points to 44 in January … This second consecutive monthly increase in builder confidence closely tracks with a period of falling interest rates,” the release states.

Regulations taking a toll

Washington Republicans have argued burdensome regulations have also added to the cost of buying a new home.

For example, this past November the Washington State Building Code Council, appointed by Gov. Jay Inslee, enacted new regulations aimed at making the heating of homes more eco-friendly. The new building code requires all new buildings to be built with gas appliances to reach the same energy efficiency as those built with electric appliances. Senate Republicans claim that the new mandates would add $15,000 to $30,000 to the price of a new home.

But during this past legislative session, there were bipartisan efforts by lawmakers to cut unnecessary red tape. SB 5792 excludes exempt buildings with 12 or fewer units that are not higher than three stories from being considered a “multiunit residential building” if one story is used for parking or retail space. That is beneficial because it absolves any such building from being subject to certain enclosure design and inspection requirements.

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It joins a trio of bills passed in 2023 (SBs 5412, 5058 and 5290) aimed at streamlining the permit process, removing certain environmental regulations and changing the definition of a “multiunit residential building.”

“This bill builds on last year’s efforts to have more housing options for Washington’s middle class,” SB 5792 and 5058’s sponsor State Sen. Mike Padden, R-Spokane Valley, said.

SB 5792 goes into effect June 6.

“Washington has one of the lower homeownership rates in the nation, and both policies can help our state address this problem,” Padden added.

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