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New Homes Pay For Themselves, Say Homebuilders

New housing units provide financial benefits for local and state government, according to a new study prepared for the California Homebuilding Foundation.

To determine that houses are money-makers for government, however, the study assumes that economic growth will correspond to housing development. Thus, much of the windfall comes from additional retail sales and job growth that the study assumes will accompany new housing.

The study by former state Finance Director Tim Gage and former Legislative Analyst's Office staff member Matthew Newman, now both with Blue Sky Consulting Group, concluded that the average city nets $3,017 in one-time benefits from a new median-price home, while the average county nets $1,706 and the state government $15,858. New median-priced homes provide ongoing, annual net revenue gains of $771 to the average city, $190 to the average county and $3,498 to the state, according to the study, "The Housing Bottom Line."

The study contradicts what has been the conventional wisdom that housing is a money loser for the government. Newman said that the study is the first to "examine the overall fiscal effects of housing" at the state, county and city level.

"Most of the available work examining the fiscal impact of housing in California has been done by consultants hired by local jurisdictions to set the level of a ‘fiscal impact fee,'" Gage and Newman wrote in the study. "A major difference between these studies and the analysis done for this report is that, while the other studies look at the impact of a specific proposed development project, we are considering the fiscal impact of housing in general terms, focusing on the impact of the ‘next house' to be built."

Michael Coleman, fiscal policy advisor to the League of California Cities, called the conclusion an overstatement. "The implication is that if you build homes, that causes job growth, not just construction- and housing development-related job growth. I think that goes too far," he said. "This study essentially assumes that 100% of the taxable sales related to a new house are going to occur in the community where that house is built. But that happens in only a very few communities."

Moreover, the study implies that a new house will always be a new house and "because the impacts are positive in the earliest first few years, they are positive for the life of that house," Coleman pointed out. However, the numbers change over time and can turn negative as assessed values stagnate and service costs rise.

Still, Coleman said the study supports his recent analyses that show new, higher-end homes generate more revenue than the cost to provide service to the houses.

Fred Silva, a longtime state-local fiscal policy analyst now with the New California Network, called the study correct "from a statewide perspective." But, he warned, "It's very tricky to draw statewide conclusions on a per-capita basis and apply them locally. Oakland is going to look different than Napa, which is going to look different than Vacaville."

Silva, who provided Gage and Newman with a little early guidance, said the study is one of the first to note the importance of Proposition 1A from 2004. That measure changed vehicle license fee (VLF) allocations away from a per-capita basis. Instead, VLF allocations are now tied to assessed valuations, Silva explained. This is very important for growing cities, he said.

The study is available at www.mychf.org.
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