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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With homebuyers rushing to complete their purchases before a tax credit for first-time owners expires, a report Friday is expected to show strong September sales

       Home resales are expected to show an almost 5 percent increase to a seasonally adjusted annual rate of 5.35 million, up from 5.1 million in August, according to economists polled by Thomson Reuters. If the report meets forecasts it would be the best month for home sales in more than two years.


Michael Conroy / AP Photo A "sold" sign is shown in front of a home in Carmel, Ind.

       The National Association of Realtors' report is scheduled for 10 a.m. EDT.

       The sales jump, however, could be far larger than Wall Street expects, according to a monthly survey of 1,500 real estate agents for Campbell Communications, a research firm. That's because foreclosure sales are booming in cities like Los Angeles, San Diego and Las Vegas.

       "There's a mini-boom going on in the housing market," said Thomas Popik, who conducted the survey for Campbell and expects a double-digit increase.

       First-time homebuyers and investors are snapping up those homes and taking advantage of low mortgage rates. These buyers can also take advantage of a tax credit of 10 percent of the sales price, up to $8,000, if the deal is completed by the end of November.

       The tax credit is so important to some buyers that they are adding a clause to their contracts, allowing them to back out if the sale doesn't close by Nov. 30.

       While home sales and housing construction have risen steadily after hitting bottom earlier this year, most economists believe that the worst isn't over for home values. In August, the median price was $177,700, down from the peak of $230,300 in July 2006, but still above the bottom of $164,800 in January, according to the Realtors group.

       Prices could see a double dip because rising unemployment is having a ripple effect on foreclosures. The jobless rate, currently at 9.8 percent is expected to rise as high as 10.5 percent next year, causing more people to be unable to afford their monthly mortgage payment.

       "There's more supply that's going to come into the marketplace," said Stan Humphries, chief economist at real estate Web site Zillow.com. "That additional supply will outpace demand."

       Some signs of softer prices may already be appearing. A government index released Thursday showed U.S. home prices dipped 0.3 percent from July to August.

       That drop "supports our view that the housing recovery will be slow and bumpy," wrote Paul Dales, U.S. economist with Capital Economics.

       With concerns about the housing market still prominent, Congress is considering several proposals to extend the tax credit for first-time buyers. Senators Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., want to extend it through June 30, and expand it to include all home buyers, at an estimated cost of $16.7 billion.

       One potential roadblock, however, emerged this week. There are concerns that some of the 1.5 million applications for the tax credit are fraudulent.

       At a hearing before a House subcommittee Thursday, J. Russell George, the Treasury Department's inspector general for taxes, questioned the legitimacy of some 100,000 claims for the credit, potentially including some illegal immigrants and 580 people under 18. The youngest taxpayers to apply for the credit were 4 years old, his office said.

       While the program has widespread support in Congress, there are growing concerns about the costs. The cause, said Sen. Jack Reed, D-R.I., "is a worthy one." But "I hope we can find ways to pay for it."
 
 
 
 
Associated Press Writer Alan Zibel wrote this report. Writer Jim Abrams contributed.
 
 
 
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