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New Housing Construction Benefits California Economy Despite Economic Downturn, New Study Finds

$375,699 in New Economic Activity and 2.1 Jobs Gained for Each Median-Priced Home Built in 2009-10; Lower Cost Housing Also Provides Positive Fiscal Impact

Washington, DC (September 23) The Center for Housing Policy, a national nonprofit research organization, released a study finding that, on average, a newly built home selling for the median price in the state of California produced an estimated $375,699 in new economic activity in fiscal year 2009-2010. This economic activity is enough to support the creation of 2.1 jobs per new home built, the study found.

"We wanted to find out whether the California economy and state and local budgets would benefit from new housing construction even with the economic downturn and declining home values," explained John McIlwain, chairman of the Center for Housing Policy, which released the study's findings today in a report titled Building California's Future. "We found that overall, California’s economy benefits substantially when a new home is built,” he continued.

“Constructing a new home is also a boon for state and local budgets,” noted Keith Wardrip, the Center for Housing Policy senior research associate who co-authored the study. “The generation of revenue as the home is built as well as annual revenues from taxes after it is occupied outweighs the costs of providing services for the home’s residents at both the state and local levels," he said.

The State of California experiences a one-time fiscal gain of $10,479 for each median-priced home constructed and a further estimated gain of $1,869 each year, as average revenues generated by the residents more than cover ongoing state expenditures on the home’s residents. The vast majority of cities and counties also experience positive fiscal effects, with one-time fiscal gains averaging $759 per home for the typical city and $1,442 for the typical county. On an ongoing basis in these localities, the fiscal effects of new housing construction are also positive: $262 per year for the typical city and $45 per year for the typical county.

NEW HOME CONSTRUCTION BENEFITS A VARIETY OF BUSINESS SECTORS

Construction of a new median-priced home in California generates 2.1 jobs on average, the study found. For each home, one new job is created as a direct effect of home construction. The indirect effect of the construction, such as increased demand on manufacturers of windows and doors, leads to an additional 0.6 job created. Induced effects, such as increased spending by construction workers and suppliers on retail, entertainment and health care, account for an additional 0.5 job.

STATE FACING HOUSING UNDERSUPPLY

According to Lynn Jacobs, director of the California Department of Housing and Community Development, which commissioned the study along with the California Department of Real Estate and the California Housing Finance Agency, the California economy and the state’s employers depend on new housing construction to help keep housing prices in check. “Employers are concerned that employees are priced out of the local housing market making recruitment and retention difficult," said Jacobs.

The report, which was based on research by the Blue Sky Consulting Group and was funded by the California agencies sponsoring the report as well as Wells Fargo and Bank of America, also finds that since 2006, household growth has outstripped growth in the number of new housing units. "This undersupply will reduce affordability for both homeowners and renters, causing them to live further from their jobs, and negatively impacting their quality of life," Jacobs explained. "This is why we at DHCD have been so strongly promoting the creation of a permanent source of funding for affordable housing," she added.

AFFORDABLE HOUSING A KEY ECONOMIC CONTRIBUTOR

The report focused principally on the impact of constructing a median-priced home, but analysis also shows that construction of lower cost housing has a positive effect on the budgets of the state and average locality. "The development of more affordable homes is not only an important strategy for attracting and retaining the workforce California needs, but a sound financial move for state and local governments," concluded Maya Brennan, the Center for Housing Policy senior research associate who co-authored the study with Wardrip. Research cited in the report suggests that areas with higher housing costs may have difficulty retaining or attracting residents. A lack of affordable housing also has a variety of unintended consequences. “Areas with a shortage of affordable housing may face increased congestion from longer commutes, difficulty luring business investment, and increased environmental degradation,” she explained.

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