Study Shows New Housing Pays Its Way in California
A new in-depth study concludes that new housing construction in California produces a substantial fiscal benefit to state and local governments.
The report, funded by the California Homebuilding Foundation (formerly the California Building Industry Foundation), the research and education center for California’s home building and construction industries, is the first to analyze the overall fiscal effects of housing on a statewide basis.
The study, “The Housing Bottom Line: Fiscal Impact of New Home Construction on California Governments,” found that new median-priced homes provide a strong one-time fiscal benefit when first built and a net ongoing revenue stream as well. It also concluded that new homes provide a much bigger fiscal benefit than existing homes. At the state level, that difference totals $4,219 a year.
“Despite the well-documented economic benefits of new-home construction, the fiscal impacts of housing may well have a more significant impact on local land use decision-making,” said Matthew Newman, an expert in state and local government fiscal policies, who prepared the report along with Tim Gage, a former state finance director. Both are principals in the Blue Sky Consulting Group.
“Local elected officials certainly take into consideration the economic benefits of a proposed development project,” said Newman, “but, at bottom, the fiscal impact of the proposed development likely will have a more significant influence on decision making.”
Newman said that many consulting firms and university researchers have looked at the fiscal effects of a specific development project on one city or on one county, but “no previous study that examines the overall fiscal effects of housing at the state level or looks at multiple cities or counties has been found.”
The report concludes that new housing more than pays its way. Among the findings:
- The average city in California nets $3,017 in one-time benefits, which range from $2,353 in the San Diego area to almost $6,800 in the central part of the Bay Area. County governments net an average of $1,706 in one-time benefits, and the state reaps an average windfall of $15,858 in corporate and sales tax revenue from the sale of each median-priced new home.
- On an ongoing basis, new homes provide a net revenue stream of $771 to cities, ranging from $287 in Orange County to $1,107 in the Central Valley. County governments net a weighted average of $190 a year, and the state nets almost $3,500 a year for each new home.
- While the net ongoing impact for new homes at the state level was $3,498, the state actually spent $631 per year more than it received from existing homes — a difference of $4,129.
Kile Morgan, chairman of Ponderosa Homes, a home building company in the Bay Area and chairman of the California Homebuilding Foundation, said that the report may help promote more new housing in a state that hasn’t kept pace with new housing demand for nearly 20 years.
“In the years leading up to this study, most local officials claimed that new residential construction did not ‘pay its own way’ when it came to its impact on the local community,” Morgan said. “For years, local governments have believed that new housing projects are a net loser to local governments. As a result, local jurisdictions seek out retail development instead because of the sales tax revenue it generates.”
The fiscal impact report, he said, “shows without a doubt that this longstanding belief simply isn’t true and will help educate state and local officials up and down the state that housing — especially new housing — does in fact pay its way.”
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NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market
With the current cooling of the nation’s housing market expected to persist into next year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment.
To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar.
For assistance, call the NAHB Member Service Center at 800-368-5242.