The Impact of Real Estate Cycles on Construction Lags

Abstract

This paper explores the influence of real estate cycles on construction lags by analyzing the fluctuations in building permits and usage permits as measured by total floor area. Results support the hypothesis that a long-run equilibrium exists between building and usage; however, building permits issued may fall during a downswing in the market. In addition, the duration of construction lags is affected by changes in real estate cycles and by the impact of government policies. When the market is strong, the duration of construction lags shortens and the duration is extended when the market is depressed.