The Housing Bottom Line
Fiscal Impact of New Home Construction on California Governments
Funded through a grant from The California Homebuilding Foundation
Prepared by Matthew Newman, Tim Gage and Elizabeth Mokyr
The Blue Sky Consulting Group June 2007
Complete Study
Executive Summary
Issues Brief
The purpose of this analysis is to estimate the fiscal impact of new housing in California. Specifically, our analysis seeks to answer the question: What is the fiscal impact on city, county, and state government budgets when a new house is built? This analysis examines both the one-time costs and revenues associated with the construction of a new, occupied dwelling, as well as the ongoing service costs and revenue effects of new housing.
Housing has long been recognized as a significant component of the state's economy. Numerous studies and experts have documented the impact of new housing on job creation and overall economic growth. The fiscal impact of housing, however, has been the subject of far less analytical examination. Although many consulting firms and university researchers have looked at the fiscal effects of a specific development project on one city or one county, we found no previous study that examines the overall fiscal effects of housing at the state level or looks at multiple cities or counties (let alone all the municipalities in California, as we have in this analysis).
Lacking this analytical work, many local officials and researchers operate under the belief that new residential construction does not "pay its own way". However, it is possible that new residential development is more fiscally beneficial than conventional wisdom holds. For example, because actual housing values are going up much faster than the assessed values of existing homes, new houses (initially assessed at market value) will generate substantially more property tax revenues than homes of equal value that have not been on the market for several years.
The current body of research on the fiscal impact of housing does not include a multi jurisdiction analysis of whether or not new housing pays its own way. This study seeks to fill the gap in the existing literature by analyzing this question in detail.
Results
The results of our analysis indicate that, on average, construction of a new house provides substantial fiscal benefits for all levels of government in California. Specifically, we found that when a median-priced house is built, the state receives an ongoing fiscal benefit of $3,498 and a one-time benefit of $15,858. The average city receives an ongoing fiscal benefit of $771 and a one-time benefit of $3,017. The fiscal impact of new housing on counties depends on the location in the county in which the new construction occurs. Construction of a median-priced home in the incorporated portion of the county yields an ongoing fiscal benefit of $571 as compared to a $266 annual cost for houses built in the unincorporated area of counties. The one-time county-level fiscal impacts are positive for houses regardless of where in the county the house is built, at $1,332 for houses built in the incorporated portion of the county and $2,323 for houses built in the unincorporated portion of the county. The average dwelling built in a county produces a one-time fiscal benefit of $1,706 and an ongoing benefit of $190.