Remodeling, Like New-Home Building, Boosts Local Economies

       The following is excerpted from a presentation to the Home Builders Association of Greater Peoria, Ill., earlier this year on the economic benefits of the remodeling industry.

       Just like new construction, remodeling injects a tremendous amount of money into the local economy.

       Whether you build a $300,000 house or do a $300,000 remodeling job, both put money into the hands of local tradesmen, in the form of wages; local suppliers, in the form of purchases; and local governments, in the form of permits and sales taxes.

       And, once in the economy, that money creates a ripple as it passes from person to person.

       For example, a tradesman may spend part of his paycheck at a local restaurant. The waitress may then spend some of her salary and tips to get her car fixed and the mechanic who installs her new brake pads and rotors may spend part of his income going to a chiropractor. While these transactions may be small, together they add up.

       On average, every $100 million spent on additions and alterations creates 690 full time jobs — 480 construction jobs, 110 wholesale and retail trade jobs and 70 jobs in business and professional services like accounting — plus $36.7 million of local income and $3.2 million in local taxes.

       Then there’s the all important ripple effect. Remember, the ripple occurs because the local economy has increased by almost $40 million in taxes and local income ($36.7 million in local income and $3.2 million in local taxes) because of the additions and alterations that were performed.

       Once earned, this nearly $40 million gets spent, much of it in the local economy. And, in the process, this creates another 320 jobs — 70 in the wholesale and retail trade; 60 in local government; 30 in restaurants, bars and other eating establishments; 30 in healthcare, education and social services; and many other jobs in other sectors — not to mention $1.7 million more in taxes and another $17.5 million of local income.

       Combined, the direct and ripple phases from additions and alterations result in 1,010 jobs, $4.9 million in local taxes and $54.2 million in local income.

       Thought of another way, every 10 jobs created building additions and making alterations leads to almost five more jobs through remodeling’s ripple phase — and every $10 of tax revenue generated initially creates another $5.40 due to the ripple.

       Moreover, for every $10 of local income generated during the remodeling phase, $4.80 in additional local income is created courtesy of its ripple. In short, no matter how you look at it, the ripple phase is about half as big as the initial additions and alterations phase.

       Lastly, while additions and alterations always result in a temporary boost to the local economy, there is likely to be a permanent boost, too. If the additions and alterations result in a permanent addition to the structure, then its taxable value rises and the flow of property taxes to all local governments rises.

Elliot Eisenberg is a senior economist at NAHB. For more information, e-mail Eisenberg, or call him at 800-368-5242 x8398.




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