By Wyatt Kash. California's Building Industry Association deserves credit for developing a new and constructive approach in addressing regional policy leaders who find it politically expedient to restrain new home construction.

Most people understand how new home construction creates jobs and fuels local economies with secondary spending. But just how much has been hard to measure. And for many planning officials, the weighted emotions of a community are often more tangible than the trickle down benefits of incremental spending that result each time a new house is built.

An important new study commissioned by the CBIA, however, provides detailed numbers to help make the case that the total economic impact of new home construction is far bigger than many would have guessed. And by demonstrating how housing lifts the economic tide perhaps more than any other business sector, it also makes a more fundamental case: Cash-strapped counties and regions would benefit from permitting more new home construction.

Where the study breaks new ground is its attempt to measure the indirect and the induced economic benefits of housing. Drilling deep into California's economic figures from 1997 to 2001, Dr. J. Robert Fountain, research director for the Sacramento Regional Research Institute, showed that the 132,130 new homes constructed on average over each of those years generated:

  • 141,785 jobs and more than $20.2 billion per year in direct benefits based on expenditures made by home builders and their employees;
  • 103,017 jobs and $10.1 billion per year in indirect benefits from incremental spending from wholesalers, services, and other suppliers to builders;
  • 114,130 jobs and $9.6 billion per year in induced benefits, which represents what workers for builders and indirectly-linked businesses spend on their own housing, cars, health care, insurance, and other retail consumption.

As a stand-alone industry, residential construction ranks in the top 15 industries in California in terms of total economic output. But when the full impact of economic multipliers is considered, the housing industry ranks as the largest contributing sector, matched only by the wholesale and retail industry.
The study, "The Economic Benefits of Housing in California," breaks further ground by detailing how $40 billion and 358,900 jobs per year in total economic benefit impacts two dozen major California markets, showing that every dollar spent on new housing construction generates $1.95 in total economic activity.

Curiously, the report doesn't translate the results into output per house. I couldn't resist doing the math. While averages are always suspect, what California's figures show is that every 1,000 houses built produces:

  • 1,074 jobs and $153 million in direct benefits;
  • 780 jobs and $76 million in indirect benefits;
  • 865 jobs and $73 million in induced benefits.

For policy makers, the point shouldn't be lost: "Each new home generates about $19,000 in direct revenue to state government," notes CBIA president, Harry Elliott. In total, he adds, housing related state taxes and fees generated $2.8 billion for California in 2001 and $3.1 billion in 2002.

Photo: Katherine Lambert

Adds Allan Zaremberg, president of the California Chamber of Commerce and co-chairman of the Job-Center Coalition: "The [housing] industry's full economic potential continues to go unrealized as annual housing production remains well below the state's needs." While it would be easy to urge other states and associations to develop comparable research, the likelihood is that few will have the resources, or the hard data to accomplish it. But big builders might.

If ever there was an opportunity for big builders to unite in creating an articulate case for why communities should give them more respect than they get, this might be one of them. Yes, there will always be legions of critics poking holes in the figures; or saying that the report ignores related costs. But the CBIA-commissioned report offers a clear and commendable model for making a broader economic case for building new homes sooner rather than later.

For a copy of the report, visit CBIA's Web site at or call 916-443-7933.

Wyatt Kash