It turns out that new homes can pay for themselves and add some jobs and tax revenue to the areas where they are built. But they have to be expensive homes ”“ about $400,000. That is the message for Dutchess and Orange counties after release of a new study by the Hudson Valley Home Builders Association.Â
Other data show that in 2008, new home construction in the Hudson Valley was miniscule compared with the previous 20 years. And according to the association”™s data, current average home prices in Dutchess and Orange counties may not be robust enough to meet the threshold where new homes cost more to build than they are worth.
An economic impact study conducted by the National Association of Home Builders (NAHB) Housing Policy Department shows that every 1,000 single-family homes built in Dutchess and Orange counties in 2008 will generate a cumulative $236.3 million in revenue, compared with only $149.1 million in costs over the next 15 years. The study assumes the average house is built at a cost of $438,000.
“This is the most relevant study to answer the question, does housing pay for itself?” said Elliot Eisenberg, senior economist for the NAHB. He said data show the answer is a resounding yes, based in part on a three-phase economic impact: the construction phase, the ripple effect and the occupancy phase.
At a presentation before about two-dozen people at the Builders Association of the Hudson Valley in New Windsor, Eisenberg acknowledged the conventional wisdom that new homes do not pay for themselves in a local economy because they require more services than their property tax bill pays for. But he said that view is not based on data.
“People don”™t appreciate the impact home building has because they don”™t see the home going up, and they don”™t see the ripple effect,” said Eisenberg.
His data posits that every 1,000 new homes that are constructed create 2,833 jobs, generate $17.1 million in local taxes and $182.3 million in local income during the first year, the time frame he terms the construction phase.
Afterwards, these wages and profits circulate, creating another 1,531 jobs, $11.6 million in local taxes and $90.7 million in income, also in the first year, he said. That is the ripple effect, which as a rule of thumb he said, is about half the size of the benefits from construction.
Over time, in what he called the occupancy phase, effects of the home being occupied are an additional 795 jobs in the community, from bankers to pizza delivery drivers, creating $14.3 million in local taxes and $44.2 million in income per year, he said.
On the negative side of the ledger, according to Eisenberg, each new single-family house costs the government a one-time fee of about $31,000 to compensate for the increased demand on local infrastructure, for schools, roads and sewer systems. Additionally, it takes about $8,000 annually per house for services such as the fire department and public school teachers’ salaries.
So, in Dutchess and Orange Counties as long as the houses, on average, cost more than $400,000, the revenues outweigh the costs, according to the Builder’s Association study.
“If you live in a house that costs less than $300,000, you are not paying the cost of public services,” Eisenberg said.
That caveat has enormous implications as home prices fall and housing starts plummet.
Average sale prices for houses in Dutchess County peaked about $337,000 early in 2007 and have been declining ever since. By the end of 2008, the average sale price was roughly $260,000. Those figures did not differentiate between new and existing home sales.
Likewise in Orange County, home sales prices peaked at about $275,000 in late 2007 and by the end of 2008 had dropped to just under $250,000 for an average home. Again, the data did not differentiate between new and existing homes.
Eisenberg said his study did not take into account the current economic doldrums.   Â
Current statistics tell a grim tale, however, about the impact of the economic crisis on home starts. According to data provided by the builder”™s association, there were only 63 permits issued for new home construction in Dutchess County in 2008. That compares with 420 in 2007, and 685 in 2006. The data show 14,985 building permits for single family homes were issued in Dutchess County between 1987 and 2007, averaging almost exactly 750 per year.
In Orange County there is a similar pattern. There were 391 building permits issued in 2008, as compared with 705 in 2007 and 848 in 2006. Between 1998 and 2005, more than one thousand permits were issued each year in Orange County, with a peak of 1,565 in year 2000. Â
