Presented

by

Elliot F. Eisenberg, Ph.D.National Association of Home

Builders

June 13, 2007Erlanger, KY

THE METRO AREA IMPACT OF HOME BUILDING IN

FIVE KENTUCKY COUNTIES IN THE CINCINNATI METRO AREA

LOCAL ECONOMIC IMPACT• Construction phase

– Jobs– Materials– Local fees, taxes, contributions

• Ripple or feed-back from construction– Wages spent in local economy

• Occupancy phase– Earnings spent in local economy

• Conventional Wisdom is that more jobs produce homes

• But, new homes produce more jobs too!

VALUE OF CONSTRUCTION

SERVICES PROVIDED AT CLOSING

PERMIT/HOOK-UP/IMPACT FEES

(Info Obtained From Local Sources)

INCOME FOR LOCAL RESIDENTS

TAX/FEE REVENUEFOR LOCAL GOVERNMENTS

CONSTRUCTION PHASE

INPUTS:

OUTPUTS:

MODEL OF THE LOCAL ECONOMY

LOCAL INCOME & TAXESFROM PHASE I

LOCAL INCOME & TAXES

SPENDING ONLOCAL GOODS AND SERVICES

Consumer Expenditure Survey(U.S. Bureau of Labor Statistics)

MODEL OF THE LOCAL ECONOMY

RIPPLE PHASEINPUTS:

OUTPUTS:

INCOME OF HOUSEHOLDOCCUPYING NEW HOUSING UNIT

LOCAL INCOME & TAXES

SPENDING ONLOCAL GOODS AND SERVICES

PROPERTY TAX PAYMENTS

MODEL OF THE LOCAL ECONOMY

OCCUPANCY PHASE

INPUTS:

OUTPUTS:

The Cincinnati-Middletown MSA

The Cincinnati-Middletown MSA Multiplier

Only CapturesSpending that Stays in the MSA

Includes:Banking, Car Repair, Dry CleaningDay Care Services, Legal ServicesNewspaper Delivery, and Restaurants

But not:Auto Manufacturing, Mattress Manufacturing, Movie Production, and Travel Agency Services

History of the Model• Over 450 eco. impact analyses performed

Users of the model include:

Boone County Kentucky Habitat for Humanity, InternationalMI State Housing Development Authority Michigan State University Missouri Housing Development CommissionMontana State UnivesityUniv. of FloridaUniv. of MassachusettsWest Virginia Housing Development Fund…

Assumptions of the Model

• Average house price Single Family

Multifamily

Average house price: $268,710$125,999

Average raw lot cost: $17,333 $7,420

Permit/Impact fees: $2,887 $1,250

Annual prop. taxes: $2,950 $1,358

Economic Impact of Single Family Home Building

• Construction phase

• Ripple effect from construction phase

• Occupancy phase

• Ten year total

FIRST YEAR IMPACT: SF Construction2,349 SF Homes

INCLUDING:

3,589 Jobs in Construction 771 Jobs in Wholesale & Retail Trade 447 Jobs in Business and Professional Services

Local Income Local Taxes Local Jobs$260,883,000 $15,860,000 5,062

Local Income Local Taxes Local Job$119,318,000 $9,812,000 2,421

FIRST YEAR IMPACT: SF Ripple

INCLUDING:

557 Jobs in Wholesale and Retail Trade 374 Jobs in Local Government289 Jobs in Health, Education & Social Services

ONGOING SF ANNUAL EFFECT

Local Income Local Taxes Local Jobs$78,515,000 $13,960,000 1,705

INCLUDING:

395 Jobs in Wholesale and Retail Trade 267 Jobs in Local Government 199 Jobs in Health, Education & Social Services

TOTAL SF IMPACT:FIRST TEN YEARS

Local Income Local Taxes

$1,126,044,000 $158,292,000

Along with 7,483 temporary jobs

and 2,421 permanent ones!

FIRST YEAR IMPACT: MF Construction452 MF Homes

INCLUDING:

442 Jobs in Construction 61 Jobs in Business and Professional Services 51 Jobs in Wholesale & Retail Trade

Local Income Local Taxes Local Jobs$26,415,000 $1,461,000 573

Local Income Local Taxes Local Job$11,947,000 $988,000 242

FIRST YEAR IMPACT: MF Ripple

INCLUDING:

56 Jobs in Wholesale and Retail Trade 35 Jobs in Local Government 29 Jobs in Health, Education & Social Services

ONGOING MF ANNUAL EFFECT

Local Income Local Taxes Local Jobs$17,498,000 $2,199,000 323

INCLUDING:

68 Jobs in Wholesale and Retail Trade 39 Jobs in Local Government 39 Jobs in Health, Education & Social Services

TOTAL MF IMPACT:FIRST TEN YEARS

Local Income Local Taxes

$204,593,000 $23,339,000

Along with 815 temporary jobs and 323 permanent ones!

BUTNEW HOMES REQUIRE:

•Fire and police protection•Garbage collection•Parks and recreational opportunities•Roads•Primary and secondary education •Etc…

INFRASTRUCTURE

Required Current Expenses per SF Unit

Function Single Family State Aid

Education $1,854 53%Police Protection $562 0%Fire Protection $266 0%Corrections $116 0%Streets and Highways $56 68%Water Supply $172 7%Sewerage $125 0%Health Services $110 83%Recreation and Culture $294 0%Other General Government $755 44%Electric Utilities $46 0%Gas Utilities $23 0%Public Transit $16 81%Total $4,394

Required Current Expenses per MF Unit

Function Multifamily State Aid

Education $1,078 53%Police Protection $418 0%Fire Protection $198 0%Corrections $86 0%Streets and Highways $39 68%Water Supply $90 7%Sewerage $65 0%Health Services $82 83%Recreation and Culture $219 0%Other General Government $562 44%Electric Utilities $34 0%Gas Utilities $17 0%Public Transit $12 81%Total $2,900

Required Capital per SF Unit

Function Single Family

Schools $6,101

Hospitals $77

Other Buildings $3,788

Highways and Streets $1,928

Conservation & dev. $68

Sewer Systems $2,755

Water Supply $5,368

Other structures $5,397

Equipment $236

Total $25,717

Required Capital per MF Unit

Function Multifamily

Schools $3,549

Hospitals $57

Other Buildings $2,819

Highways and Streets $1,335

Conservation & dev. $50

Sewer Systems $1,442

Water Supply $2,809

Other structures $4,016

Equipment $176

Total $16,254

Does new construction pay for itself?

The benefits of construction

&

The costs of construction

Now that we know:

• By the 2nd year economic impacts offset fiscal costs• By the end of the 13th year the debt is fully paid off • In the 13th year, net is $4,388,256 and is $4,526,406 thereafter

Yes it does!

Current Operating Investment Debt at Interest Net

Year Expenses Revenue Surplus Start of Year Year End On Debt Income

1 5,816,000 36,200,748 30,384,748 67,756,000 40,353,081 2,981,828 -40,353,081

2 11,632,000 16,158,406 4,526,406 0 37,602,546 1,775,872 2,750,535

3 11,632,000 16,158,406 4,526,406 0 34,730,965 1,654,825 2,871,581

4 11,632,000 16,158,406 4,526,406 0 31,733,010 1,528,452 2,997,955

5 11,632,000 16,158,406 4,526,406 0 28,603,120 1,396,517 3,129,890

6 11,632,000 16,158,406 4,526,406 0 25,335,489 1,258,776 3,267,631

7 11,632,000 16,158,406 4,526,406 0 21,924,055 1,114,973 3,411,434

8 11,632,000 16,158,406 4,526,406 0 18,362,490 964,841 3,561,565

9 11,632,000 16,158,406 4,526,406 0 14,644,186 808,103 3,718,304

10 11,632,000 16,158,406 4,526,406 0 10,762,246 644,466 3,881,940

11 11,632,000 16,158,406 4,526,406 633,000 7,342,468 473,628 3,419,778

12 11,632,000 16,158,406 4,526,406 0 3,139,191 323,130 4,203,277

13 11,632,000 16,158,406 4,526,406 0 0 138,151 4,388,256

14 11,632,000 16,158,406 4,526,406 0 0 0 4,526,406

15 11,632,000 16,158,406 4,526,406 0 0 0 4,526,406

For all 2,349 SF and 452 MF units--

Over 15 years, every 2,349 SF and 452 MF units generate a cumulative $262.4 million in revenue for local governments—but only $252.1 million in costs

Costs Compared to Revenue: All 2,349 SF and 452 MF Units

0

50

100

150

200

250

300

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Year

$Millions

Cumulative Cost

Cumulative Revenue

Almost done, just a bit more

What does 13 years really mean?

• Is it OK, or should it be done faster?

• Big purchases take time to pay off.

• Car loans now last 5 years, and many lease!

• How fast did you pay off your student loans?

• How fast are your kids paying off theirs?

• Did you pay off your home in 13 years?

A Closer Look at Primary and Secondary

Ed.

• 12.6% attend Private Schools• 1.7% are Home schooled• 0.4 school age children / MF unit• 0.6 school age children / SF unit • State aid is $1.3 billion or 53% of

budget

How Large Are Non Property Tax Revenues

• SF property taxes are $2,950/yearBut, yearly revenue is $5,943/unit per year, which is 101% more.

• MF property taxes are $1,358/yearBut, yearly revenue is $4,865/unit per year, which is 258% more.

• Clearly, property taxes are not the whole story!

Elliot F. Eisenberg, Ph.D.

Call: 202.266.8398Fax: 202.266.8426

eeisenberg@nahb.com

1201 15th Street NWWashington, DC 20005-2800

QUESTIONS?