What do 1,000 Homes mean to our Economy?

The construction industry has not enjoyed the recovery that other major sectors have experienced.

I’ve said for a couple of years now that the many economists who track gross domestic product expansion since the depths of the Great Recession are all quick to point out at least one factor in why our post-recession growth has been so anemic: The construction industry is not enjoying the recovery that other major sectors, such as autos, hospitality, the airlines and other segments, have experienced since the trough in 2010-11.

For example, 2016 ended with an estimated 345 million cubic yards of concrete produced, which is still 100-plus million cubic yards less than 2005 and 2006, when the industry hit an all-time high. Volumes are a more accurate measure than dollars; while put-in-place figures for November 2016 almost match the same levels of 2006 at almost $1.2 trillion, the 2016 number does not account for government-published cumulative inflation of almost 20% during that decade. Construction still has a way to go toward a ful recovery, and when it does reach its pre-recession high, watch the GDP grow at a 4% rate, or higher.

An example of this is an analysis conducted by the National Association of Home Builders

that measured the financial impact of what building 1,000 new homes means to the U.S. economy. According to NAHB’s National Impact of Home Building model, building 1,000 average single-family homes generates 2,975 jobs and $111 million in taxes and fees for all levels of government. Similarly, building 1,000 average rental apartments generates 1,133 jobs and $42.4 million in taxes.The jobs are measured in full-time equivalents (enough work to keep one worker employed full-time for a year), and are broad-based. Although a substantial share of the employment is generated in the construction industry, other jobs are created for employees in firms that manufacture building products, transport and sell those products, and provide professional services to home builders and buyers, such as architects and real estate agents.

In the construction industry, the profit generated for sole proprietors, meaning individuals who own their own businesses, tends to be quite substantial relative to wages and salaries. This is because the profit generated for owners of the subcontracting businesses that usually handle a large share of the construction work. In some cases, the owners of these businesses perform construction work themselves, and this is essentially true by definition for the many one-person subcontracting firms that populate the industry.

$111 million in fees and taxes

NAHB further found that wages, profits, and the construction activity itself are subject to a variety of taxes and fees that generate revenue for about 90,000 different governments in the U.S. The $111 million in taxes and fees generated by 1,000 single-family home includes $74.4 million in federal taxes (mostly income taxes and Social Security), $10.3 million in state and local income taxes, $6.9 million in state and local sales taxes, and $13.7 million in impact, permits, and other fees local governments impose on new construction.Similarly, the $42.4 million in taxes and fees generated by 1,000 rental apartments includes $28.4 million in federal taxes, $3.9 million in state and local income taxes, $2.6 million in state and local sales taxes, and $5.4 million in permit and other construction-related fees collected by local governments. These fees are part of the government regulation that in total accounts for 24.3% of the price of a new home.

And the above is just for 1,000 new homes. Multiply that by the 1.2 million new housing starts projected for this year, then add commercial, industrial, and public works of all types, and you can see how the construction industry engine drives such an important part of GDP growth.

Overall, we see clear sailing ahead, and remain bullish on the outlook for the ready-mixed concrete industry in 2017 and beyond.

Pierre Villere Pierre Villere

Pierre G. Villere has been a contributing editor for The Concrete Producer for over a decade, and serves as the President and Senior Managing Partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry. He has a career spanning more than four decades, and volunteers his time to educating the industry through his regular articles and presentations. Contact Pierre via email.

By |2017-10-03T09:32:53-07:00January 12th, 2017|