NAHB Economic Impacts 3-10

The Local Economic Impact of
Typical Housing Tax Credit

Developments
Prepared by the
Housing Policy Department
March 2010
National Association of Home Builders

1201 15th Street, NW
Washington, DC 20005
202-266-8398
Developments
Contents
Executive Summary…………………………………………………………………………………………. 1
Detailed Tables for a Family Tax Credit Development……………………………………. 4
Detailed Tables for an Elderly Tax Credit Development…………..…………………….. 9
Background and a Brief Description of the Model Used to Estimate the

Economic Benefits………………………………………………………………………………………….. 14
Attachment:
Local Impact of Home Building—Technical Documentation for the NAHB
Model Used to Estimate the Income, Jobs, and Taxes Generated
Executive Summary
The process of developing and building new housing generates substantial local economic
activity, including new income and jobs for residents, and additional revenue for local
governments. As with other categories of housing, this is true for multifamily developments
financed with Low-Income Housing Tax Credits (hereafter, either housing tax credits, or simply
tax credits).
Created as part of the Tax Reform Act of 1986, the housing tax credit program is currently the
federal government’s largest program for helping the private sector build affordable rental
housing. Under the program, federal income tax credits are awarded by state Housing Finance
Agencies to a development under the condition that the rents and incomes of its tenants remain
restricted. The credits are shared among the owners of a project, typically limited partner
investors recruited by syndicators. Investors receive the credits for ten years, provided the
property continues to comply with the rent and income restrictions. Federal law requires that
the rents and incomes remain restricted for 15 years, but all states now employ “extended use”
agreements designed to retain the units in the affordable housing stock for at least 30 years.
Most states make a fundamental distinction between “family” and “elderly” housing tax credit
developments. Elderly developments do not necessarily offer special services (such as meals or
personal care) but typically are age-restricted according to provisions of the Housing for Older
Persons Act of 1995, which defined three conditions under which it is legally possible to exclude
residents below a certain age. Housing tax credit developments that are not elderly or targeted
to other tenants with special needs are then classified as family developments.
The National Association of Home Builders (NAHB) has developed models to estimate the local
economic benefits of these developments. The model captures the effect of the construction
activity itself, the ripple impact that occurs when income earned from construction activity is
spent and recycles in the local economy, and the ongoing impact that results from the new
apartments becoming occupied by residents who pay taxes and buy locally produced goods and
services. In order to fully appreciate the positive impact residential construction has on a
community, it’s important to include the ripple effects and the ongoing benefits. The versions of
the model for tax credit development are similar to the model for multifamily rental property in
general, but differ in the way incomes and spending tendencies of the occupants are estimated.
This report presents estimates of the economic impacts of building 100 apartments in both a
typical family housing tax credit development, and a typical elderly tax credit development. The
use of a round number like 100 facilitates scaling the results to developments of other sizes, as
the impacts are proportional to the number of units in the development. For example, the
impacts for a 200-unit development would be twice the impacts reported here, the impacts for a
60-unit development would be 60 percent of the impacts reported here, and so on.
The NAHB model produces impacts on income and employment in 16 industries and local
government, as well as detailed information about taxes and other forms of local government
revenue. The key results are summarized below. Additional details are contained in
subsequent sections.
1
Typical Family Tax Credit Development
The estimated one-year local impacts of building 100 apartments in a typical family tax
credit development include
$7.9 million in local income,
$827,000 in taxes and other revenue for local governments, and
122 local jobs.
These are local impacts, representing income and jobs for local residents, and taxes (and
other sources of revenue, including permit fees) for all local jurisdictions within the area.
Local jobs are measured in full time equivalents—i.e., one reported job represents enough
work to keep one worker employed full-time for a year, based on average hours worked per
week by full-time employees in the industry.
The additional, annually recurring impacts of building 100 apartments in a typical family tax
30 local jobs.
These are ongoing, annual local impacts that result from the new apartments being
occupied, and the occupants paying taxes and otherwise participating in the local economy
year after year. The ongoing impacts also include the effect of increased property taxes,
based on the difference between the value of raw land and the value of a completed
housing unit on a finished lot, assuming that the same tax rate would apply to raw land.
The impacts summarized above were estimated under the assumptions that the new family tax
credit apartments have an average market value (based on acquisition, development,
construction and lease-up costs for an equivalent market-rate property) of $120,000; embody
an average raw land value of $12,000; require the builder and developer to pay an average of
$3,043 in impact, permit, and other fees per unit to local governments; and incur an average
annual property tax of $1,200 per unit. These characteristics are similar to the ones employed
by NAHB to analyze the impact of an average rental apartment on the U.S. economy.1
In the past, NAHB has estimated inputs for typical tax credit apartments by collecting
information on specific projects from housing tax credit developers. The result was a sample
driven by developer cooperation rather than one designed to be representative of tax credit
development throughout the country. Moreover, this procedure invariably resulted in an
average value per unit that was close to the average value for new market-rate rental
apartments. The assumption used in this report—that average inputs for a housing tax credit
apartment are similar to average inputs for a market-rate rental apartment—is thus broadly
consistent with NAHB’s past experience, as well as with the presumption that the housing tax
credit program produces apartments of market-rate quality at below market-rate rents.
1
See “The Direct Impact of Home Building and Remodeling on the U.S. Economy” in
HousingEconomics.com:
http://www.nahb.org/generic.aspx?sectionID=734&genericContentID=103543&channelID=311.
2
Typical Elderly Tax Credit Development
The estimated one-year local impacts of building 100 apartments in a typical elderly tax
113 local jobs.
These are local impacts, representing income and jobs for local residents, and taxes (and
other sources of revenue, including permit fees) for all local jurisdictions within the area.
They include both the direct and indirect impact of the construction activity itself, and the
impact of local residents who earn money from the construction activity spending part of it
within the area’s local economy.
The additional, annually recurring impacts of building 100 apartments in a typical elderly
tax credit development include
32 local jobs.
These are ongoing, annual local impacts that result from the new apartments being
occupied, and the occupants participating in the local economy year after year.
These impacts were estimated under the assumptions that the new elderly tax credit units have
an average market value (based on acquisition, development, construction and lease-up costs
for an equivalent market-rate property) of $111,314; embody an average raw land value of
$11,000; require the builder and developer to pay an average of $2,823 in permit and other
fees per unit to local governments; and incur an average annual property tax of $1,113.
The estimate of market value per unit is based on market value for a family tax credit
apartment, adjusted for differences in apartment size and construction cost per square foot.
The 2007 American Housing Survey (produced by the U.S. Census Bureau and the Department
of Housing and Urban Development) shows that apartments in new age-restricted buildings are
on average about 18 percent smaller than new rental apartments in general (783 square feet
vs. 955). A comparison of nineteen family and nineteen elderly tax credit developments built in
the same states by the same developer showed that construction cost per square foot of
apartment space apartments was about 13 percent higher for the elderly developments. This
result is expected, because elderly developments tend to need more and different elevators and
space for support staff, even if these developments do not offer meals or other special services.
Compared to family tax credit units, the one-year benefits generated by the 100 elderly tax
credit apartments are slightly smaller, because construction value per unit is slightly smaller.
Some of the ongoing impacts are also slightly smaller for the elderly apartments, but the
ongoing jobs impacts are slightly higher. The estimated of income of the tenants is lower in
elderly developments, but this is largely offset by the tendency of elderly tax credit residents to
spend larger shares of their incomes on locally produced (and somewhat different) goods and
services, especially when third-party payments (especially payments to local providers of health
services by Medicare and private insurance companies) are taken into account.
3
Developments
Detailed Tables
for a
Family Tax Credit
Development
4
Impact of Building 100 Apartments in a
Typical Family Tax Credit Development
Summary
Total One-Year Impact: Sum of Phase I and Phase II:
Local Business Local Wages Local Jobs

Local Income Local Taxes1
Owners’ Income and Salaries Supported
$7,889,000 $2,300,800 $5,587,900 $826,800 122
Phase I: Direct and Indirect Impact of Construction Activity:
Business
Local Wages Local Jobs
Local Income Owners’ Local Taxes1
and Salaries Supported
Income
$5,317,500 $1,450,500 $3,866,700 $501,800 80
Phase II: Induced (Ripple) Effect of Spending the Income and Taxes from Phase I:
Business
Income
$2,571,500 $850,300 $1,721,200 $325,000 42
Phase III: Ongoing, Annual Effect that Occurs When New Homes are Occupied:

$2,385,300 $1,146,800 $1,238,300 $441,000 30
1
The term local taxes is used as a shorthand for local government revenue from all sources: taxes, fees,
fines, revenue from government-owned enterprises, etc.
5
Impact of Building 100 Family Tax Credit Apartments
Phase I—Direct and Indirect Impact of Construction Activity
A. Local Income and Jobs by Industry
Wages &
Local Business Number of
Local Wages Salaries per
Industry Local Income Owners’ Local Jobs
and Salaries Full-time
Income Supported
Job
Construction $3,707,200 $956,000 $2,751,100 $49,000 56
Manufacturing $500 $0 $500 $51,000 0
Transportation $8,400 $1,100 $7,300 $42,000 0
Communications $55,000 $16,800 $38,200 $75,000 1
Utilities $15,500 $6,000 $9,500 $84,000 0
Wholesale and Retail Trade $536,800 $98,200 $438,600 $37,000 12
Finance and Insurance $118,500 $9,600 $108,800 $83,000 1
Real Estate $172,900 $152,200 $20,700 $51,000 0
Personal & Repair Services $37,600 $14,200 $23,400 $33,000 1
Services to Dwellings / Buildings $21,000 $4,200 $16,800 $33,000 1
Business & Professional Services $517,900 $154,500 $363,400 $58,000 6
Eating and Drinking Places $17,700 $2,400 $15,300 $20,000 1
Automobile Repair & Service $17,800 $5,500 $12,300 $33,000 0
Entertainment Services $3,100 $600 $2,400 $45,000 0
Health, Educ. & Social Services $700 $200 $500 $38,000 0
Local Government $6,400 $0 $6,400 $54,000 0
Other $80,500 $29,000 $51,500 $44,000 1
Total $5,317,500 $1,450,500 $3,866,700 $48,000 80
B. Local Government General Revenue by Type
TAXES: USER FEES & CHARGES:
Business Property Taxes $17,400 Residential Permit / Impact Fees $304,300
Residential Property Taxes $0 Utilities & Other Govt. Enterprises $54,100
General Sales Taxes $38,400 Hospital Charges $23,400
Specific Excise Taxes $2,400 Transportation Charges $9,800
Income Taxes $10,400 Education Charges $10,300
License Taxes $600 Other Fees and Charges $28,500
Other Taxes $2,300 TOTAL FEES & CHARGES $430,400
TOTAL TAXES $71,400 TOTAL GENERAL REVENUE $501,800
6
Phase II—Induced Effect of Spending Income and Tax Revenue from Phase I
Wages &
Income Supported
Job
Construction $119,000 $46,100 $72,900 $49,000 1
Manufacturing $500 $0 $500 $51,000 0
Transportation $8,700 $1,200 $7,500 $38,000 0
Communications $153,100 $52,300 $100,800 $74,000 1
Utilities $73,800 $29,100 $44,600 $84,000 1
Real Estate $453,700 $399,400 $54,300 $51,000 1
Entertainment Services $29,700 $8,200 $21,500 $37,000 1
Health, Educ. & Social Services $346,900 $43,700 $303,200 $49,000 6
Other $68,200 $24,300 $43,900 $35,000 1
Total $2,571,500 $850,300 $1,721,200 $41,000 42
Business Property Taxes $88,000 Residential Permit / Impact Fees $0
License Taxes $1,000 Other Fees and Charges $34,000
7
Phase III—Ongoing, Annual Effect That Occurs Because Units Are Occupied
Wages &
Income Supported
Job
Construction $50,300 $18,100 $32,200 $49,000 1
Manufacturing $400 $0 $300 $51,000 0
Transportation $8,600 $1,200 $7,400 $35,000 0
Communications $103,800 $35,400 $68,400 $74,000 1
Utilities $32,300 $12,600 $19,600 $84,000 0
Real Estate $966,500 $850,800 $115,700 $51,000 2
Other $35,200 $13,400 $21,800 $35,000 1
Total $2,385,300 $1,146,800 $1,238,300 $41,000 30
Residential Property Taxes $108,000 Utilities & Other Govt. Enterprises $87,000
License Taxes $1,000 Other Fees and Charges $35,000
8
Developments
Detailed Tables
for an
Elderly Tax Credit
Development
9
Impact of Building 100 Apartments in a
Typical Elderly Tax Credit Development
Summary
Total One-Year Impact: Sum of Phase I and Phase II:

$7,317,700 $2,134,600 $5,183,500 $767,500 113
Phase I: Direct and Indirect Impact of Construction Activity:
Business
Income
$4,932,300 $1,345,700 $3,586,800 $465,500 75
Phase II: Induced (Ripple) Effect of Spending the Income and Taxes from Phase I:
Business
Income
$2,385,400 $788,900 $1,596,700 $302,000 39
Phase III: Ongoing, Annual Effect that Occurs When New Homes are Occupied:

$2,257,600 $918,200 $1,339,500 $395,000 32
1
The term local taxes is used as a shorthand for local government revenue from all sources: taxes, fees,
fines, revenue from government-owned enterprises, etc.
10
Impact of Building 100 Elderly Tax Credit Apartments
Phase I—Direct and Indirect Impact of Construction Activity
Wages &
Income Supported
Job
Construction $3,438,800 $886,800 $2,552,000 $49,000 52
Manufacturing $500 $0 $500 $51,000 0
Transportation $7,800 $1,100 $6,700 $42,000 0
Communications $51,000 $15,600 $35,400 $75,000 0
Utilities $14,300 $5,600 $8,800 $84,000 0
Real Estate $160,400 $141,200 $19,200 $51,000 0
Entertainment Services $2,800 $600 $2,300 $45,000 0
Health, Educ. & Social Services $600 $200 $500 $38,000 0
Other $74,700 $26,900 $47,800 $44,000 1
Total $4,932,300 $1,345,700 $3,586,800 $48,000 75
Business Property Taxes $16,200 Residential Permit / Impact Fees $282,300
11
Phase II—Induced Effect of Spending Income and Tax Revenue from Phase I
Wages &
Income Supported
Job
Construction $110,400 $42,800 $67,600 $49,000 1
Manufacturing $500 $0 $400 $51,000 0
Transportation $8,100 $1,100 $7,000 $38,000 0
Communications $142,000 $48,500 $93,500 $74,000 1
Utilities $68,400 $27,000 $41,400 $84,000 0
Real Estate $420,800 $370,500 $50,400 $51,000 1
Other $63,300 $22,500 $40,700 $35,000 1
Total $2,385,400 $788,900 $1,596,700 $41,000 39
12
Phase III—Ongoing, Annual Effect That Occurs Because Units Are Occupied
Wages &
Income Supported
Job
Construction $46,200 $16,500 $29,700 $49,000 1
Manufacturing $400 $0 $300 $51,000 0
Transportation $7,600 $1,100 $6,500 $36,000 0
Communications $105,700 $36,500 $69,200 $73,000 1
Utilities $29,500 $11,600 $17,900 $84,000 0
Real Estate $680,100 $598,700 $81,400 $51,000 2
Other $39,400 $12,500 $26,900 $35,000 1
Total $2,257,600 $918,200 $1,339,500 $42,000 32
Residential Property Taxes $100,000 Utilities & Other Govt. Enterprises $85,000
13
Developments
Background and a Brief

Description of the
Model Used to Estimate the
Economic Benefits
14
In 1996, the Housing Policy Department of the National Association of Home Builders (NAHB)
developed an economic model to estimate the local economic benefits of home building.
Although at first calibrated to a typical metropolitan area using national averages, the model
could be adapted to a specific local economy by replacing national averages with specific local
data for key housing market variables. The initial version of the model could be applied to
single-family construction, multifamily construction, or a combination of the two.
Since 1997, NAHB has used the model to produce customized reports on the impact of home
building in various parts of the country. As of June 2009, over 600 of these reports have been
produced, analyzing residential construction in various metropolitan areas, non-metropolitan
counties, and states (see map below).
Areas Covered by NAHB Local Impact Studies

The darkest shading indicates studies that covered metro areas and non-metro counties; the
somewhat lighter shading indicates studies that were produced for an entire state.
The reports have analyzed the impacts of specific housing projects, as well as total home
building in areas as large as entire states. In 2002, NAHB developed new versions of the model
to analyze active adult housing projects and multifamily development financed with the Low-
Income Housing Tax Credit, then in 2005 a version of the model that analyzes remodeling.
Results from NAHB’s local impact model have been used by outside organizations such as
universities, state housing authorities and affordable housing agencies:
The Shimburg Center for Affordable Housing at the University of Florida used results
from the NAHB model to establish that “the real estate taxes paid year after year are the
most obvious long-term economic benefit to the community. Probably the second most
obvious long-term economic benefit is the purchases made by the family occupying the
completed home.” www.shimberg.ufl.edu/pdf/Newslett-June02.pdf
15
The Louisville Affordable Housing Trust Fund (AHTF) used results from the NAHB model
to determine the initial one-year impact and the ongoing annual effect that occurs when
new homes are occupied. This analysis was performed to help justify the creation of a
commission to oversee the newly established AHTF to insure that it works at “finding
creative ways to create a sustainable and renewable fund to provide affordable housing
opportunities throughout the Louisville community.”
www.openthedoorlouisville.org/housing-trust/economic-growth
The Illinois Housing Development Authority used the NAHB model to determine that “the
Authority’s new construction activity in single and multifamily housing….resulted in the
creation of 4,256 full-time jobs in construction and construction-related industries.” The
Authority also used the NAHB impact model to determine the federal, state and local
taxes and fees generated from new construction and substantial rehabilitation activity.
www.ihda.org/admin/Upload/Files/94c0ecf7-a238-4be3-90bd-6043cfae81ea.pdf
The Stardust Center at the Arizona State University used “the model used and developed
by the NAHB to assess the immediate economic impacts of affordable housing” by phase
including the construction effect, the construction ripple, and on-going impacts. This
was done to show “that permanent, affordable and geographically accessible housing
provides numerous benefits both to individual families and to the broader community.”
www.orangecountyfl.net/NR/rdonlyres/efo5wiffiqvqqgn2s35shus5i4lwdgqbcxpck2dddnds
3msj5qs26ubzllsfl6s6rrwnmtkq4dypnjrdrdzei2llq5g/Socialeconomicimpacts.pdf
The Center for Applied Economic Research at Montana State University used “results
from an input-output model developed by the National Association of Home Builders to
assess the impacts to local areas from new home construction.” The results show that
“the construction industry contributes substantially to Montana’s economy accounting for
5.5 percent of Gross State Product.”
The Housing Education and Research Center at Michigan State University also adopted
the NAHB approach: “The underlying basis for supporting the implementation of this
[NAHB] model on Michigan communities is that it provides quantifiable results that link
new residential development with commercial and other forms of development therefore
illustrating the overall economic effects of residential growth.”
The Center for Economic Development at the University of Massachusetts found that
“Home building generates substantial local economic activity, including income, jobs, and
revenue for state and local governments. These far exceed the school costs-to-property-
tax ratios. …these factors were evaluated by means of a quantitative assessment of
data from the National Association of Home Builder’s Local Impact of Home Building
model.”
Similarly, the Association of Oregon Community Development Organizations decided to

base its analysis of affordable housing on the NAHB model, stating that “This model is
widely respected and utilized in analyzing the economic impact of market rate housing
development,” and that, compared to alternatives, it “is considered the most
16
comprehensive and is considered an improvement on most previous models.”
www.aocdo.org/docs/EcoDevoStudyFinal.pdf
The Boone County Kentucky Planning Commission included results from the NAHB model
in its 2005 Comprehensive Report. The Planning Commission used values from the
impact model to quantify the increase in local income, taxes, revenue, jobs, and overall
local economic impacts in the Metro Area as a result of new home construction.
The NAHB model is divided into three phases. Phases I and II are one-time effects. Phase I
captures the effects that result directly from the construction activity itself and the local
industries that contribute to it. Phase II captures the effects that occur as a result of the wages
and profits from Phase I being spent in the local economy. Phase III is an ongoing, annual
effect that includes property tax payments and the result of the completed unit being occupied.
The jobs, wages, and local taxes (including permit, utility

Phase I:
connection, and impact fees) generated by the actual
Local Industries
development, construction, and sale of the home. These jobs
Involved in
include on-site and off-site construction work as well as jobs
Home Building
generated in retail and wholesale sales of components,
transportation to the site, and the professional services required to
build a home and deliver it to its final customer.
The wages and profits for local area residents earned during
the construction period are spent on other locally produced
Phase II: goods and services. This generates additional income for local
Ripple Effect residents, which is spent on still more locally produced goods and
services, and so on. This continuing recycling of income back into
the community is usually called a multiplier or ripple effect.
The local jobs, income, and taxes generated as a result of

the home being occupied. A household moving into a new home
generally spends about three-fifths of its income on goods and
Phase III: services sold in the local economy. A fraction of this will become
Ongoing, income for local workers and local businesses proprietors. In a
Annual Effect typical local area, the household will also pay 1.25 percent of its
income to local governments in the form of taxes and user fees, and
a fraction of this will become income for local government
employees. This is the first step in another set of economic ripples
that cause a permanent increase in the level of economic activity,
jobs, wages, and local tax receipts.
17
Modeling a Local Economy
The model defines a local economy as a collection of industries and commodities. These are
selected from the detailed benchmark input-output tables produced by the U.S. Bureau of
Economic Analysis. The idea is to choose goods and services that would typically be produced,
sold, and consumed within a local market area. Laundry services would qualify, for example,
while automobile manufacturing would not. Both business-to-business and business-to-
consumer transactions are considered. In general the model takes a conservative approach and
retains a relatively small number of the available industries and commodities. Of the roughly
600 industries and commodities provided in the input-output files, the model uses only 87
commodities and 89 industries.
The design of the model implies that a local economy should include not only the places people
live, but also the places where they work, shop, typically go for entertainment, etc. This
corresponds reasonably well to the concepts of Metropolitan Statistical Areas and Metropolitan
Divisions, areas defined by the U.S. Office of Management and Budget based on local
commuting patterns. Outside of these officially defined metropolitan areas, NAHB has
determined that a county will usually satisfy the model’s requirements.
For a particular local area, the model adjusts the indirect business tax section of the national
input-output accounts to account for the fiscal structure of local governments in the area. The
information used to do this comes primarily from the U.S. Census Bureau’s Census of
Governments. Wages and salaries are extracted from the employee compensation section of
the input-output accounts on an industry-by-industry basis. In order to relate wages and
salaries to employment, the model incorporates data on local wages per job published by the
Bureau of Economic Analysis.
Phase I: Construction
In order to estimate the local impacts generated by home building, it is necessary to know the
sales price of the homes being built, how much raw land contributes to the final price, and how
much the builder and developer pay to local area governments in the form of permit, utility
connection, impact, and other fees. This information is not generally available from national
sources and in most cases must be provided by representatives from the area in question who
have specialized knowledge of local conditions.
The model subtracts raw land value from the price of new construction and converts the
difference into local wages, salaries, business owners’ income, and taxes. This is done
separately for all 95 local industries. In addition, the taxes and fees collected by local
governments during the construction phase generate wages and salaries for local government
employees. Finally the number of full time jobs supported by the wages and salaries generated
in each private local industry and the local government sector is estimated.
18
Summary of Phase I
Value of Construction
+
Services Provided at Closing
+
Permit / Hook-up / Impact Fees
Model of the Local Economy
Local Income and Taxes
Phase II: The Construction Ripple
Clearly, the local residents who earn income in Phase I will spend a share of it. Some of this
will escape the local economy. A portion of the money used to buy a new car, for example, will
become wages for autoworkers that are likely to live in another city, and increased profits for
stockholders of an automobile manufacturing company who are also likely to live elsewhere. A
portion of the spending, however, will remain within, and have an impact on, the local economy.
The car is likely to be purchased from a local dealer and generate income for a salesperson that
lives in the area, as well for local workers who provide cleaning, maintenance, and other
services to the dealership. Consumers also are likely to purchase many services locally, as well
as to pay taxes and fees to local governments.
This implies that the income and taxes generated in Phase I become the input for additional
economic impacts analyzed in what we call Phase II of the model. Phase II begins by
estimating how much of the added income households spend on each of the local commodities.
This requires detailed analysis of data from the Consumer Expenditure (CE) Survey, which is
conducted by the U.S. Bureau of Labor Statistics primarily for the purpose of determining the
weights for the Consumer Price Index. The analysis produces household spending estimates for
55 local commodities. The remainder of the 87 local commodities enter the model only as
business-to-business transactions.
The model then translates the estimated local spending into local business owners’ income,
wages and salaries, jobs, and taxes. This is essentially the same procedure applied to the
homes sold to consumers in Phase I. In Phase II, however, the procedure is applied
simultaneously to 56 locally produced and sold commodities.
19
In other words, the model converts the local income earned in Phase I into local spending,
which then generates additional local income. But this in turn will lead to additional spending,
which will generate more local income, leading to another round of spending, and so on.
Calculating the end result of these economic is a straightforward exercise in mathematics.
Summary of Phase II

from Phase I
Spending on Locally Produced

Goods and Services
Phase III: The Ongoing Impacts
Like Phase II, Phase III involves computing the sum of successive ripples of economic activity.
In Phase III, however, the first ripple is generated by the income and spending of a new
household (along with the additional property taxes local governments collect as a result of the
new structure). This does not necessarily imply that all new homes must be occupied by
households moving in from outside the local area. It may be that an average new-home
household moves into the newly constructed unit from elsewhere in the same local area, while
average existing-home household moves in from outside to occupy the unit vacated by the first
household. Alternatively, it may be that the new home allows the local area to retain a
household that would otherwise move out of the area for lack of suitable housing.
In any of these cases, it is appropriate to treat a new, occupied housing unit as a net gain to
the local economy of one household with average characteristics for a household that occupies
a new home. This reasoning is often used, even if unconsciously, when it is assumed that a
new home will be occupied by a household with average characteristics—for instance, an
average number of children who will consume public education.
To estimate the impact of the net additional households, Phase III of the model requires an
estimate of the income of the households occupying the new homes. The information used to
compute this estimate comes from several sources, but primarily from an NAHB statistical model
based on decennial census data. Phase III of the local impact model then estimates the fraction
20
of income these households spend on various local commodities. This is done with CE data and
is similar to the procedure described under Phase II. The model also calculates the amount of
local taxes the households pay each year. This is done with Census of Governments data
except in the case of residential property taxes, which are treated separately, and for which
specific information must usually be obtained from a local source. Finally, a total ripple effect is
computed, using essentially the same procedure outlined above under Phase II.
Summary of Phase III
Income of Occupant in
New Housing Unit
+
Increased Property Taxes
Spending on Locally Produced

Goods and Services
The details covered here provide a brief description of the model NAHB uses to estimate the
local economic benefits of home building. For a more complete description, see the technical
documentation at the end of the report. For additional information about the model, or
questions about applying it to a particular local area, contact one of the following in NAHB’s
Economics and Housing Policy Group:
David Crowe, Chief Economist (202) 266-8383, [email protected]

Paul Emrath, Vice President,
Survey and Housing Policy Research (202) 266-8449, [email protected]
Elliot Eisenberg, Senior Economist (202) 266-8398, [email protected]
21
Local Impact of Home Building
Technical Documentation for the

NAHB Model Used to Estimate
Income, Jobs, and Taxes
Paul Emrath,
NAHB Housing Policy Department
June 2009
National Association of Home Builders

1201 15th Street, NW
Washington, DC 20005
202-266-8398
Technical Documentation for the NAHB Model Used to
Estimate the Income, Jobs, and Taxes
The Housing Policy Department of the National Association of Home Builders (NAHB) maintains
an economic model that it uses to estimate the local economic benefits of home building. The
NAHB model is divided into three phases. Phases I and II are one-time effects. Phase I
captures the effects that result directly from the construction activity itself and the local
industries that contribute to it. Phase II captures the effects that occur as a result of the wages
and profits from Phase I being spent in the local economy. Phase III is an ongoing, annual
effect that includes property tax payments and the result of the completed unit being occupied.
The model can be customized to a specific local economy by replacing key housing market
variables. This document explains describes the sources of data used and explains how the
estimates are generated.
Modeling a Local Economy
In the NAHB model, a local economy is defined as a collection of industries and commodities,
selected from the 2002 benchmark input-output accounts produced by the U.S. Bureau of
Economic Analysis (BEA). In these accounts, definitions are based on North American Industry
Classification System (NAICS). The most detailed, 6-digit NAICS codes are used in order to
parse industries and commodities as precisely as possible in an attempt to include only business
and consumer activities that are generally local in nature. As they are adapted by BEA, there
are 426 industries in the 2002 benchmark accounts. A complete list can be found in BEA’s
detailed item output file: http://www.bea.gov/industry/io_benchmark.htm#2002data. The local
economy as defined in the NAHB model retains the following 89 industries:
NAICS Detailed Industry Name
1 111400 Greenhouse and nursery production

2 212320 Sand, gravel, clay, and refractory mining
3 221100 Power generation and supply
4 221200 Natural gas distribution
5 221300 Water, sewage and other systems
6 230101 Nonresidential commercial and health care structures
7 230103 Other nonresidential structures
8 230201 Residential permanent site single- and multi-family structures
9 230202 Other residential structures (primarily dormitories, fraternity and sorority houses)
10 230301 Nonresidential maintenance and repair
11 230302 Residential maintenance and repair
12 323120 Support activities for printing
13 339950 Sign manufacturing
14 420000 Wholesale trade
15 485000 Transit and ground passenger transportation
16 492000 Couriers and messengers
17 493000 Warehousing and storage
18 4A0000 Retail trade
Technical Documentation 1
19 511110 Newspaper and publishers
20 515100 Radio and television broadcasting
21 515200 Cable and other subscription programming
22 517000 Telecommunications
23 519100 Other information services
24 518100 Internet service providers and web search portals
25 518200 Data processing, hosting, and related services
26 522A00 Nondepository credit intermediation and related activities
27 523000 Securities, commodity contracts, investments
28 524200 Insurance agencies, brokerages, and related services
29 525000 Funds, trust, and other financial vehicles
30 52A000 Monetary authorities and depository credit intermediation
31 531000 Real estate
32 532100 Automotive equipment rental and leasing
33 532230 Video tape and disc rental
34 532400 Machinery and equipment rental and leasing
35 532A00 General and consumer goods rental except video tapes and discs
36 533000 Lessors of nonfinancial intangible assets
37 541100 Legal services
38 541200 Accounting and bookkeeping services
39 541300 Architectural and engineering services
40 541400 Specialized design services
41 541511 Custom computer programming services
42 541512 Computer systems design services
43 54151A Other computer related services, including facilities management
44 541800 Advertising and related services
45 541920 Photographic services
46 541940 Veterinary services
47 5419A0 All other miscellaneous professional and technical services
48 561100 Office administrative services
49 561200 Facilities support services
50 561300 Employment services
51 561400 Business support services
52 561600 Investigation and security services
53 561700 Services to buildings and dwellings
54 561900 Other support services
55 562000 Waste management and remediation services
56 611100 Elementary and secondary schools
57 611B00 Other educational services
58 621600 Home health care services
59 621A00 Offices of physicians, dentists, and other health practitioners
60 621B00 Other ambulatory health care services
61 622000 Hospitals
62 623000 Nursing and residential care facilities
63 624400 Child day care services
64 624A00 Individual and family services
65 624200 Community food, housing, and other relief services
66 711100 Performing arts companies
67 711200 Spectator sports
68 712000 Museums, historical sites, zoos, and parks
69 713940 Fitness and recreational sports centers
70 713950 Bowling centers
71 713A00 Amusement parks, arcades, and gambling industries
72 713B00 Other amusement and recreation industries
73 722000 Food services and drinking places
74 811192 Car washes
75 8111A0 Automotive repair and maintenance, except car washes
76 811200 Electronic equipment repair and maintenance
77 811300 Commercial machinery repair and maintenance
78 811400 Household goods repair and maintenance
79 812100 Personal care services
80 812200 Death care services
81 812300 Dry-cleaning and laundry services
82 812900 Other personal services
83 813100 Religious organizations
84 813A00 Grant making and giving and social advocacy organizations
85 813B00 Civic, social, professional and similar organizations
86 S00201 State and local government passenger transit
87 S00202 State and local government electric service
88 S00203 Other state and local government enterprises
89 S00500 General government industry
In contrast to the classification system used in some previous years, single-family and
multifamily construction are combined into a single category. The Census Bureau maintains a
description of what is included in each NAICS industry on its web site:
http://www.census.gov/cgi-bin/sssd/naics/naicsrch?chart=2002. In BEA’s system of input-
output accounts, commodities generally conform to industry definitions. However, BEA does not
include separate commodities for “state and local government passenger transit” or “state and
local government electric service” (these commodities show up as passenger transit and electric
service, irrespective of which industry produces them), so the local economy as defined in the
NAHB model consists of 89 industries and 87 commodities.
This list includes trade, construction, and a number of industries under the general categories of
finance, transportation, and services—but excludes virtually all manufacturing, mining, and
agriculture, on the grounds that markets for manufactured products are at least regional—if not
national or international—in nature.
The exclusion of many industries is a distinguishing feature of the NAHB local impact model and
is consistent with the overall intent of the model: to analyze the impact of locating a housing
unit and the household that occupies it in one place rather than another. From this perspective,
a house built in Seattle, Washington should not cause additional airplanes to be built or
additional software to be produced, even though the occupants of a home built in Seattle may
use software produced in Seattle and travel on planes built in Seattle. Because these
households would be likely to use these products the same way even if they lived in some other
metropolitan area, use of these products is not a function of the home’s location and. Hence,
industries like software publishing and aircraft manufacturing are excluded from the model.
Based on the industries and commodities described above, a “total local requirements” matrix is
constructed that shows the total output required from each of the local industries to produce $1
of each local commodities.
To illustrate the derivation of this matrix, let
c = an 87-element column vector of commodity outputs

g = an 89-element column vector of industry outputs
V = an 87×89 subset of the benchmark make table that shows how much of
each commodity is produced by each industry
h = an 89-element column vector showing how much scrap is produced by each
industry
U = a 89×87 subset of the benchmark use table that shows how much of each
commodity used as an input by each industry. Coefficients for the
wholesale trade commodity are set to zero, assuming that these
transactions are often non-local in nature. The wholesale trade industry
produces a considerable amount of the retail trade commodity. The
effect of this is to retain retail trade in the model, irrespective of which
industry produces it, but to exclude wholesale trade activities.
The following matrices can then be defined through standard input-output algebra:
B = U ĝ-1 the direct requirements matrix, showing the amount of each

commodity needed as a direct input to produce $1 of each
industry’s output. (The symbol ˆ indicates a matrix created from
a vector by placing the vector=s elements on the matrix diagonal.)
This is simply the use table scaled by industry output.
j = ĝ-1h a vector showing scrap as a fraction of each industry’s output.

Many of the elements of this vector are zero in the NAHB local
impact model, which excludes most of the manufacturing sector.
D = Vĉ -1 an 87×89 market share matrix, or the make table scaled by

commodity output. D shows the fraction of each commodity
(excluding scrap) produced by each industry.
F = (I-ĵ)-1D an 87×89 matrix showing, for $1 worth of each commodity, the

fraction produced by each industry. In short, F is D adjusted for
scrap. F is often called a transformation matrix, because it can be
used to transform commodities into the output of industries and
vice versa.
Total Local Requirements = F(I-BF)-1
The total local requirements matrix translates local commodities into the output of local
industries. The NAHB model is designed to capture only a fraction of the output: the fraction
that becomes either income for local households or revenue for local governments. These
fractions are estimated from a combination of value added components of the input-output
tables, plus information taken from other BEA industry accounts. In the BEA accounts, the final
price of a commodity is the sum of intermediate outputs plus value added by the industry.
Retaining only the value added in each industry from a total requirements matrix avoids double
counting and constrains the impact of selling a local commodity to be no more than the total
price paid for the commodity.
The input-output accounts decompose value added into three components: compensation of
employees, taxes on production and imports, and gross operating surplus. Other BEA industry
accounts provide some additional on each component. The following table summarizes the
information taken from these accounts that is used to help define a local economy.
Wages & Wages & Other Other Non-

Salaries per Salaries per Corporate as Corp. as a
Dollar of Full-Time a % of Gross % of Gross
Employee job Operating Operating
Compensation Equivalents Surplus Surplus
Farms 86.3% 32,330 27.8% 72.2%
Mining, except oil and gas 77.9% 61,399 62.7% 15.0%
Utilities 70.8% 81,471 71.3% 26.1%
Construction 82.6% 47,736 38.4% 59.9%
Miscellaneous manufacturing 69.9% 49,708 46.0% 52.1%
Wholesale trade 84.3% 61,935 81.4% 15.8%
Retail trade 85.0% 30,328 69.2% 27.3%
Transit and ground passenger transportation 81.1% 27,492 69.8% 26.4%
Other transportation and support activities 80.1% 44,802 57.5% 39.1%
Warehousing and storage 83.7% 39,941 83.3% 15.9%
Publishing industries 81.4% 75,687 80.8% 17.5%
Broadcasting and telecommunications 80.3% 69,858 68.3% 30.2%
Information and data processing services 86.3% 82,011 58.4% 39.8%
Federal Reserve banks, credit intermediation 82.9% 62,017 92.7% 3.8%
Securities, commodity contracts and investments 87.9% 212,191 73.5% 2.6%
Insurance carriers and related activities 82.0% 68,694 86.0% 14.0%
Funds, trusts and other financial vehicles 53.2% 95,698 95.8% 0.0%
Real estate 86.3% 49,838 3.2% 74.9%
Rental leasing services & lessors of intangible assets 85.1% 42,238 64.0% 33.8%
Legal services 86.4% 79,707 19.5% 78.7%
Computer systems design and related services 86.4% 92,108 4.7% 90.8%
Misc. professional, scientific, and technical services 86.1% 69,177 26.1% 72.5%
Administrative and support services 86.2% 32,067 44.8% 52.8%
Waste management and remediation services 85.2% 52,043 75.0% 22.8%
Educational services 86.9% 36,521 53.5% 40.9%
Ambulatory health care services 85.3% 56,174 40.8% 56.7%
Hospitals and nursing and residential care facilities 84.0% 42,062 36.7% 40.4%
Social assistance 87.1% 24,800 42.0% 53.7%
Performing arts, spectator sports, museums 83.5% 73,462 32.0% 66.7%
Amusements, gambling and recreation industries 86.4% 26,113 49.1% 49.4%
Food services and drinking places 86.4% 19,492 68.1% 30.3%
Other services, except government 87.2% 31,983 29.9% 63.6%
State and local general government 76.0% 48,175 NA NA
State and local government enterprises 77.1% 52,160 NA NA
In the NAHB model, local income is derived from two of the value-added components:
compensation of employees and gross operating surplus, using other information from BEA
industry accounts.
Due primarily to data limitations BEA, ratios from the relatively broad categories in the above
table are sometimes applied to more narrowly defined local industries, For example, ratios for
the broad categories “farms” and “mining” are each applied to a single, more narrowly defined
local industry—“greenhouse and nursery production” and “sand, gravel, clay, and refractory
mining,” respectively.
The estimates of local income in the NAHB model exclude most corporate profits, based on the
rationale that ownership of most corporations is national or international in scope. Even if a
household living in Cleveland buys a product manufactured by a corporation located in
Cleveland, profits derived from the sale are likely to be distributed to shareholders living in other
locations.
The model makes an exception to this general rule for subchapter S corporations. S
corporations tend to be smaller and more local and in this regard tend to resemble partnerships
more than C corporations. S corporations also tend to be relatively common in particular
industries, such as residential construction. The Internal Revenue Service (IRS) provides
information on business receipts by form of business and industry
(http://www.irs.gov/taxstats/bustaxstats/article/0,,id=152029,00.html) and this is used to
decompose corporate profits into profits for S-corporations and C-corporations. The IRS tables
provide relatively limited industry detail, so again percentages for a broadly defined industry are
often applied to several of the more precisely defined 6-digit NAICS industries. The S-
corporation profits by industry are then included as part of local income.
Local government revenue is estimated as a function of both local income and taxes on
production and imports by industry. Across the country as a whole, BEA’s national accounts
show that taxes on production and imports collected by local governments (which consist largely
of sales taxes) account for 36.1 percent of all TOPI (86.2 percent, for state and local
governments are combined), and that the average effective state and local corporate income
tax rate is 6.35 percent.
Up to this point, the local economy has been defined based on a technology that is location
invariant. The fiscal structure of local governments is known to vary considerably across the
country, however. At this stage, the model employs data from the most recent Census of
Governments (http://www.census.gov/govs/www/gid2002.html). Census of Governments data
are available for each of the roughly 87,000 units of government in the U.S., and these data can
be used to customize the structure of local government finances to a particular area.
Aggregating personal taxes and fees over all local (or state and local) governments in the U.S.
shows that these taxes and fees sum to 1.031 (4.466) percent of personal income. The NAHB
model uses three local (or state and local) factors based on aggregate revenues divided by
personal income, and the ratio of these measures for the area in question to the U.S. as a
whole.
For a specific area,
Personal taxes =
1.0317% (or 4.446%) × Local Personal Income × Local Factor 1
Business taxes =
36.1% (or 86.2%) × TOPI in Local Industries × Local Factor 2 +
6.35% × Corporate Profits in Local Industries × Local Factor 3
where the three local factors are derived on a case by case basis from data in the most recent
Census of Governments. These factors are applied to value added in each local industry. This
preserves the industry detail in the input-output accounts while customizing the analysis to a
local area by using data from the Census of Governments, which is a distinguishing feature of
the NAHB local impact model.
In the case of corporate profits in local industries for a particular metropolitan area or
nonmetropolitan county, Local Factor 3 will usually be zero. Very few local governments impose
a tax on corporate profits, so this will usually have an impact only when the model is applied to
an entire state.
Phase I: Construction
As shown diagrammatically in “Background and a Brief Description of the Model Used to

Estimate the Economic Benefits”, Phase I of the model feeds the dollar amount of construction
and ancillary locally produced items into the income and tax matrices derived from the model
total local requirements. Accounting for everything that goes into building a home and
delivering it to its customer is more complicated than it may at first appear.
For one thing, the Census Bureau subtracts several items from construction value before
providing the numbers to BEA for use in the input-output and related GDP accounts. On new
homes built for sale, the Census Bureau subtracts 1.1 percent of the sales price for landscaping,
0.5 percent for appliances, 2.9 percent for realtor and brokers fees, and 2.7 percent for
marketing and finance costs. There are equivalent subtractions for custom homes (i.e., homes
where the builder functions as a general contractor for a home built on the customer’s lot).
However, the landscaping and purchases of appliances and marketing/broker services

associated with a newly built home clearly are attributable to the construction of the home.
Phase I of the NAHB model therefore accounts for these items as separate purchases of the
local construction, retail trade, and real estate industries. For retail trade, only the gross margin
of appliance purchases are counted. Gross margins for different types of retailers are available
from the Census Bureau’s Annual Retail Trade Survey
(http://www.census.gov/svsd/www/artstbl.html).
In addition, there are settlement or closing costs associated with transferring property from a
builder to the ultimate owner. In a typical case, these costs are shared between buyers and
sellers. Construction value as defined in the input-output accounts includes closing costs if they
are paid by the seller, but not the buyer. When the local impact model was first developed,
NAHB verified these details with economists at BEA.
In order to estimate both closing costs as a fraction of the home’s price and the share of these
costs the buyer pays, the NAHB model uses national average data compiled by the U.S.
Department of Housing and Urban Development.4 The share of settlement costs paid for by the
buyer for loan origination and discount fees, title and private mortgage insurance, and legal fees
are counted as output of the local depository credit intermediation, insurance, and legal
services industries, respectively.
Another category of closing costs sometimes paid by the buyer is mortgage or deed transfer
taxes. Phase I of the NAHB model does not automatically include an amount for transfer taxes.
In most (but not all) instances, these taxes are imposed by state, rather than, local
governments. To the extent that transfer taxes apply in a specific case, that information needs
to be supplied by the local entity requesting the analysis.
If the local entity requesting an analysis provides information that sales taxes are imposed on
construction material and supplies a local sales tax rate, the model captures these taxes as
revenue generated for local governments assuming that materials account for 30 percent of the
final price of a housing unit. The figure of 30 percent is taken from information reported in the
April 2004 Professional Builder, which is generally consistent with results from construction cost
surveys NAHB has conducted over the years.
Phase II: The Construction Ripple
Phase I of the model translates home building activity into income for local workers and
business proprietors, and revenue for local governments. This output serves as the input for
Phase II, as part of the local income generated will be spent, generating more income,
generating more spending, and so on. These spending ripples damp and eventually converge to
a limit, which is the ultimate ripple or multiplier effect.
To convert local income to local spending, the model requires information about local household
spending tendencies. Detailed spending information at the household level is available from the
Consumer Expenditure (CE) Survey, produced by the U.S. Bureau of Labor Statistics (BLS)
primarily for the purpose of determining the weights for the Consumer Price Index
(http://www.bls.gov/cex/home.htm) 5
4
Report to Congress on the Need for Further Legislation in the Area of Real Estate Settlements, 1981,
Exhibits II-1 and II-6.
5
Technically, in the Consumer Expenditure Survey, the unit of measurement is actually not a household,
but a Consumer Unit, a group of individuals who live in the same house and make joint purchasing
decisions. There may be more than one Consumer Unit in a household.
The CE consists of two different types of surveys: 1) an interview survey that collects data on
monthly expenditures as well as information on income and household characteristics, and 2) a
diary survey that collects data on weekly expenditures of frequently purchased items. These
are two separate surveys, each designed individually with weights that aggregate to an estimate
of total spending in the U.S. When it estimates aggregate measures of consumer spending, BLS
combines results from the two different types of surveys in a manner it does not disclose in
detail to the public.
The NAHB local impact model uses only data from the interview survey, primarily to avoid the
need for arbitrary decisions about which spending items to take from which survey. Based on
its CE interview survey, BLS produces a public use microdata set consisting of quarterly files
with household characteristics (including income), another set of quarterly files a record of
income and other characteristics for each member of the household, and a set of fifty-one
annual “EXPN” files with detailed information about various categories of expenditures.
These detailed files allow NAHB to maintain a conservative approach and exclude spending on
items that may often be purchased from a vendor outside the local area. For example, BLS
collects information on spending while on trips and vacations away from home in a separate
“TRV” EXPN file. The NAHB local impact model does not include any spending information at all
from the TRV file. NAHB processes the information from the EXPN files along with information
on household characteristics and income to estimate spending tendencies on 47 locally
produced commodities, as shown in the following table:
Local Spending Extracted from the CE EXPN Files

NAICS EXPN
Local commodity Description of items included in local spending
Code File
1 Greenhouse and nursery 111400 CRB Costs of all items and services for planting shrubs or trees, or
production otherwise landscaping the ground of the housing unit in which
the consumer unit lives.
2 Power generation and 221100 UTC Electricity bills for the housing unit in which the consumer unit
supply lives.
3 Natural gas distribution 221200 UTC Gas bills for the housing unit in which the consumer unit lives.
4 Water, sewage and other 221300 UTC Water and/or sewage bills for the housing unit in which the
systems consumer unit lives.
5 New residential additions 230130 CRB Costs of all items and services associated with building an
and alterations, nonfarm addition to the house or a new structure including porch,
garage or new wing; finishing a basement or an attic or
enclosing a porch; remodeling one or more rooms; building
outdoor patios, walks, fences, or other enclosures, driveways,
or permanent swimming pools; or other improvements or
repairs to the housing unit in which the consumer unit lives.
NAICS EXPN
Code File
6 Maintenance and repair of 230310 CRB Costs of all items and services associated with repairing
farm and nonfarm outdoor patios, walks, fences, driveways, or permanent
residential structures swimming pools; inside painting or papering; outside painting;
plastering or paneling; plumbing or water heating installations
and repairs; electrical work; heating or air-conditioning jobs;
flooring repair or replacement; insulation; roofing, gutters, or
downspouts; siding; installation, repair, or replacement of
window panes, screens, storm doors, awnings, etc.; and
masonry, brick or stucco work for the housing unit in which the
consumer unit lives.
7 Transit and ground 485000 EDA Amount paid for private bus transportation to elementary or
passenger transportation high school for members of the consumer unit.
XPB Costs for taxis, limousine service, and public transportation,
except while on a trip.
8 Retail trade 4A0000 APA Purchases of major appliances × 26.5% (gross margin for
electronics and appliance stores) × 81% (adjustment for loss
of local sales to internet and mail order business).
APB Purchases of other households appliances and other selected

items × 26.5% (gross margin for electronics and appliance
stores) × 81% (adjustment for loss of local sales to internet
and mail order business).
FRA Purchases of home furnishings × 48.1% (gross margin for
furniture and home furnishing stores) × 81% (adjustment for
loss of local sales to internet and mail order business).
CLA Purchases of clothing × 47.9% (gross margin for clothing and
clothing accessories stores) × 81% (adjustment for loss of
local sales to internet and mail order business).
CLB Purchases of infants' clothing, watches, jewelry, and
hairpieces × 47.9% (gross margin for clothing and clothing
accessories stores) × 81% (adjustment for loss of local sales
to internet and mail order business).
CLC Purchases of sewing materials × 47.9% (gross margin for

clothing and clothing accessories stores) × 81% (adjustment
for loss of local sales to internet and mail order business).
OVB Purchases of automobiles, including down payment and
payment of principle on loans × 16.2% (gross margin for
automobile dealers) × 81% (adjustment for loss of local sales
to internet and mail order business).
VOT Purchases of gasoline and other fuels and fluids used in
vehicles × 16.4% (gross margin for gasoline stations) × 81%
(adjustment for loss of local sales to internet and mail order
business).
IHB Share of health insurance premiums, after broker/agent share
is subtracted, used to purchase prescription drugs and
durable medical equipment × 30.8% (gross margin for health
and personal care stores) × 81% (adjustment for loss of local
sales to internet and mail order business).
NAICS EXPN
Code File
Retail trade (cont) IHC Number of persons covered by Medicare times average
Medicare benefits per Medicare enrollee times the share of
Medicare benefits used to purchase prescription drugs, other
nondurable medical products, and durable medical
equipment × 30.8% (gross margin for health and personal
care stores) × 81% (adjustment for loss of local sales to
internet and mail order business).
MDB Direct purchases of glasses, hearing aids, prescription
medication, convalescent equipment, or other medical
equipment × 30.8% (gross margin for health and personal
care stores) × 81% (adjustment for loss of local sales to
EDA Purchases of books or other equipment for elementary or high
school for members of the consumer unit × 39.8% (gross
margin for sporting goods, hobby, book and music stores) ×
81% (adjustment for loss of local sales to internet and mail
order business).
ENT Amount paid for CDs or audio tapes, photographic film, video
cassettes or tapes or discs, and books, but not through a mail
order club or subscription × 39.8% (gross margin for sporting
goods, hobby, book and music stores) × 81% (adjustment for
loss of local sales to internet and mail order business).
MIS Expenses for flowers, potted plants, pet supplies and

medicines, toys, and games, and computer or video
hardware, software, and accessories × 43.8% (gross margin
for miscellaneous store retailers) × 81% (adjustment for loss
of local sales to internet and mail order business).
XPA Expenditure for food and nonfood items at grocery stores, and
for food and beverages from places other than grocery stores
× 29.4% (gross margin for food and beverage stores).
XPB Expenditures for cigarettes and other tobacco products ×

31.4% (gross margin for all retailers excluding motor vehicle
and parts dealers) × 81% (adjustment for loss of local sales to
9 Newspaper and publishers 511110 ENT Expenses for newspapers and other periodicals not through a
subscription.
10 Cable networks and 513200 UTI Expenses for cable TV, satellite TV, and satellite radio
program distribution services.
11 Telecommunications 513300 UTA Telephone bills, irrespective of items included in service.
UTP Pre-paid phone card or public pay phone services.
12 Information services 514100 UTI Expense for internet connection, excluding any away from
home.
13 Nondepository credit 522A00 OVB Interest payment on automobile loans.
intermediation and related
activities
NAICS EXPN
Code File
Insurance agencies, 524200 INB Percent of premiums for all types of insurance other than
14 brokerages, and other health (percentage based on agent/brokers' share of
insurance related activities industry).
IHB Percent of premiums for health insurance (percentage based
on agent/brokers' share of industry).
15 Monetary authorities and 52A000 HEL Interest paid on lump sum home equity loans, based only on
depository credit the home in which the consumer unit lives.
intermediation
OPH Interest paid on home equity lines of credit, based only on the
home in which the consumer unit lives.
OPI Penalty charges on special or lump sum mortgage payment.
XPB Charges for safe deposit boxes, checking accounts, and other
banking services.
16 Real estate 531000 RNT Total rental payments for the housing unit in which the
OPI ground or land rent, portion of condo fee for management
services, special payments for property management
services--all of these only for the property in which the
17 Automotive equipment 532100 RTV Expenses for renting vehicles.
rental and leasing
LSD Expenses for leasing vehicles.
18 Video tape and disc rental 532230 ENT Amount paid for rental of video cassettes, tapes, or discs.
19 General and consumer 532A00 APA Expenses for renting major appliances.
goods rental except video
tapes and discs
APB Expenses for renting other household appliances and
selected items.
FRB Expenses for renting furniture.
CLD Expenses for renting clothing.
MDB Expenses for renting convalescent or other medical
equipment.
20 Legal services 541100 MIS Expenses for services of lawyers or other legal professionals.
21 Accounting and 541200 MIS Accounting fees.
bookkeeping services
22 Photographic services 541920 ENT Amount paid for film processing or printing digital
photographs.
MIS Amount paid for professional photography fees.
23 Veterinary services 541940 MIS Veterinarian expenses for pets.
24 Investigation and security 561600 MIS Home security service fees.
services
25 Services to buildings and 561700 APA Charges for installing major appliances.
dwellings
EQB Costs for pest control or repairing and servicing heating and
air conditioning equipment.
MIS Other home services and small repair jobs around the house.
26 Waste management and 562000 UTC Trash/garbage collection bills for the housing unit in which the
remediation services consumer unit lives.
NAICS EXPN
Code File
27 Elementary and 611100 EDA Tuition and other expenses for elementary or high school for
secondary schools members of the consumer unit.
28 Home health care 621600 IHB Share of health insurance premiums, after broker/agent share
services is subtracted, used to pay for home health care.
IHC Number of persons covered by Medicare times average
Medicare benefits used to pay for home health care.
29 Offices of physicians, 621A00 IHB Share of health insurance premiums, after broker/agent share
dentists, and other health is subtracted, used to pay for physician, clinical, and dental
practitioners services.
Medicare benefits used to pay for physician, clinical, and
dental services.
MDB Direct payments for eye care, dental care, or physician
services.
30 Other ambulatory health 621B00 IHB Share of health insurance premiums, after broker/agent share
care services is subtracted, used to pay for other professional services.
Medicare benefits used to pay for other professional services.
MDB direct payments for services by medical professionals other

than physicians, lab tests, and other medical care.
31 Hospitals 622000 IHB Share of health insurance premiums, after broker/agent share
is subtracted, used to pay for hospital care.
Medicare benefits used to pay for hospital care.
MDB Direct payments for hospital rooms or services.

32 Nursing and residential 623000 IHB Share of health insurance premiums, after broker/agent share
care facilities is subtracted, used to pay for nursing home care.
Medicare benefits used to pay for nursing home care.
MDB Direct payments for care in convalescent of nursing home.

33 Child day care services 624400 EDA Expenses for nursery school or child day care centers for
members of the consumer unit.
MIS Expenses for babysitting, nanny services, or child care in the
consumer unit's or someone else's home.
34 Performing arts 711100 SUB Theater or concert season tickets.
companies
ENT Single admissions to movies, theaters, and concerts.
35 Spectator sports 711200 SUB Season tickets to sporting events.
ENT Single admissions to spectator sporting events
NAICS EXPN
Code File
36 Fitness and recreational 713940 EDA Recreational lessons and instruction for members of the
sports centers consumer unit.
SUB Expenses for membership in golf courses. Country clubs,
health clubs, fitness centers, or other sports and recreational
organizations.
ENT Fees for participating in sports.
37 Other amusement, 713A00 MIS Expenses for lotteries and games of chance.
gambling, and recreation
industries
38 Food services and 722000 XPA Expenditures for food and beverages at restaurants,
drinking places cafeterias, cafes, drive-ins, etc.
39 Automotive repair and 8111A0 VEQ Expenses for vehicle maintenance and repair.
maintenance, except car
washes
VOT Expenses for towing and automobile repair service policies.
40 Electronic equipment 811200 EQB Cost for repairs and services related to computers.
repair and maintenance
41 Household goods repair 811400 EQB Costs for repairing or servicing appliances, tools, sound,
and maintenance video, photographic, sports, and lawn and garden equipment;
or repairing computer-related equipment.
FRB Costs for repairing furniture.

CLD Costs for repairing or altering clothing and accessories, or
repairing watches or jewelry.
42 Personal care services 812100 IHC Number of persons covered by Medicare times average
Medicare benefits used to pay for other personal care
services.
MIS Expenses for adult day care centers, and home care for
invalids, convalescents, handicapped, or elderly persons.
43 Death care services 812200 MIS Expenses for funerals, burials, cremation, and purchase and
upkeep of cemetery lots or vaults.
44 Dry cleaning and laundry 812300 XPB Expenses for clothing and other items at sent to drycleaners
services and laundry, as well as coin operated dry cleaning and
laundry machines.
45 Other personal services 812900 CLD Costs of clothing storage services.
VOT Fess for vehicle parking, boat docking and plane landing.
MIS Catering and pet services.
XPB Expenses for haircuts, hair styling, manicures, massages, and
other salon services.
46 Religious organizations 813100 CNT Contributions to religious organizations.
47 Civic, social, professional 813B00 SUB Expenses for membership in civic, service, or fraternal
and similar organizations organizations.
For the items included in retail sales, only the gross margins are included, and in most cases a
further adjustment is made to account for loss of local sales to internet and mail order business.
The fraction is based on the Report on Sales Taxes produced by the Government Accountability
Office (GAO) in June of 2000 (GAO/GGD/OCE-00-165). Using numbers from Marketing
Logistics, GAO estimated that business-to-consumer remote sales in 2000 were 186 to 278
billion. A subsequent GAO update found no need to revise the analysis (March 28, 2002 press
release). NAHB applied this sales loss estimate to personal consumption expenditures on
durable and non durable goods from the GDP accounts in order to derive the factor used to
deflate purchases and account for business local retailers lose due to remote sales through
media such as the internet.
Insurance payments are separated into a share going to brokers and agents and the insurance
companies, based on the proportional share of revenue reported in the latest Economic Census
(http://www.census.gov/econ/census02/data/us/US000_52.HTM). The share going to brokers
and agents is counted as local income. However, it is also assumed that the share going to
insurance companies comes back in some cases as these companies pay medical costs for policy
holders that go to health care providers in the local area. This is estimated using “Personal
Health Care Expenditures by object & Source of Payment” reported by the Census Bureau in the
Statistical Abstract of the United States (Table 128 in the 2008 Abstract).
A similar calculation is made for expenses covered by Medicare. The CE data include the
number of household members covered by Medicare. Payments made by Medicare to local
health care providers are estimated using statistics on “Medicare Benefits by Types of Provider,”
“Medicare Enrollees,” and “Medicare Disbursements by Type of Beneficiary” (Tables 134, 136
and 137, respectively in the 2008 Statistical Abstract of the United States)
The consumer spending variables used in the model are all in the form of average propensities
to consume—that is, average fractions of before-tax income spent on various items. As shown
in the table above, The EXPN files generate local consumer spending estimates for 47 of the
first 85 local commodities listed on pages 2 and 3. The others enter the model only through
local business-to-business transactions in the local total requirements matrix.
To this, the local impact model adds seven categories of local commodities produced by local
government enterprises:
1 Local government electric service

2 Local government natural gas distribution
3 Local government water & sewerage
4 Local government passenger transit
5 Local government liquor stores
6 Local government sanitary services
7 Local government hospitals
The introduction of these commodities does not increase total local spending. Instead, as each
of these seven commodities has a corresponding commodity produced by private sector
industry, the local impact model allocates consumption spending between the publicly produced
and privately produced commodities based on information from the Census of Governments.
This enables the model to be consistent with both national household consumption patterns and
revenue collected by all government enterprises in a particular local area.
To this is added one other local commodity, general government, to account for tax and fee
payments (computed in Phase II primarily from BEA personal income estimates and Census of
Governments revenue data).
The results can be collected in a matrix 2×55 matrix, A:
⎡ a1 a 2 a 3 ... a 54 0 ⎤
A= ⎢ ⎥
⎣ 0 0 0 ... 0 1 ⎦
The elements in the first row of A show the average fraction of income spent on each of the 54
local commodities (including those produced by local government enterprises such as publicly
owned utilities or hospitals). The “O”s and “1” in the second row indicates that no taxes are
spent directly by the household on any of the first 54 commodities; 100 percent is spent on the
local general government commodity. This two-row structure is designed to align with the
output from Phase I of the model, which comes in the form of before-tax local income and local
tax estimates.
Several other matrices and vectors derived from the above concepts are needed to calculate the
Phase II ripple or multiplier effect:
W: a 55×89 matrix that translates local commodities into local income,
G: a 55×89 matrix that translates local commodities into local government general
revenue collected from persons, and
T: a 55×89 matrix that translates local commodities into local government general
revenue collected from businesses
L = [W G T ] therefore defines a 55×267 matrix
x = a two element column vector containing local income and local taxes generated in
Phase I
⎡ i 0 0⎤
⎢ ⎥ a 267×3 matrix where i is a 89-element unit column vector,
Y =⎢0 i 0 ⎥
⎢0 0 i ⎥
⎣ ⎦
⎡1 0⎤
⎢ ⎥
Z =⎢ 0 1⎥
⎢ 0 1⎥
⎣ ⎦
In summary, x is the income and tax output from Phase 1, A translates income and taxes into
spending on particular commodities, L translates the detailed commodity spending into income
and taxes in each of 89 local industries, and Y and Z are technical devices for summing results.
Y collapses the components of a 267-element vector into a 3-element vector of income,
personal taxes, and business taxes. Z converts a 3-element vector of this form into a 2-element
income and tax vector.
The row vector defined as x ′ A shows how much, in dollar terms, people who earn income
during Phase I spend on each of the 55 local commodities, including local government.
The calculation x ′ ALYZ produces a 2-element local income and local tax vector of the same
form as x ′ . Postmultiplying a vector of this type by ALYZ will always produce a similar, 2-
element income and tax vector. Either by construction, or by checking that both eigenvalues
are smaller than 1, it is possible to show that ALYZ is a contracting matrix. This implies that
the rounds below show successively smaller increments of income and taxes added to the local
economy:
Round 0 : x ′
Round 1 : x ′ ALYZ
Round 2 : x ′ ALYZ ALYZ
Round 3 : x ′ ALYZ ALYZ ALYZ
.
.
.
K
Round K : x′ ∏ ALYZ
k =1
The terms of this sequence can be summed in the usual manner to create an infinite series.
Because ALYZ is a contracting matrix, the result is a convergent series, the limit of which is
x' [ I - ALYZ ]-1

This is the final multiplied effect on local income and local taxes at the end of Phase II. The
factor [I-ALYZ] is a matrix version of the conventional Keynesian spending multiplier.
-1
Because x ′ is reported in Phase I, it is subtracted from the effect reported in Phase II.
For some purposes, especially estimating employment impacts, we are interested in tracking
income in Phase II by industry. Calculations to accomplish this are based on the following
sequence of 1×267 vectors:
Round 1 : x ′AL
Round 2 : x ′AL YZAL
.
.
.
K -1
Round K : x ′AL ∏ YZAL
k =1
Note that sequence begins with the spending vector x'AL—that is, it excludes the income and
taxes that have already been captured in Phase I. The limit of the series defined based on this
sequence is
x ′AL [ I -YZAL ] -1
This is a 267-element row vector, the first 89 elements containing the final, multiplied effect on
local income by industry generated during Phase II. As explained above, income by industry
can be separated into business owners’ income and wages and salaries, and the wages and
salaries converted to full-time job equivalents.
From the standpoint of local governments, it may be desirable to track individual sources of
revenue, such as particular fees and taxes. To facilitate this, it is useful to have a three element
local income and local tax vector, where the tax revenue is decomposed into taxes collected
from persons and taxes collected from businesses.
Consider the following sequence of such 3-element vectors:

Round 1 : x ′ALY
Round 2 : x′ALY ZALY
.
.
.
K
Round K : x′ALY ∏ ZALY
k =1
This sequence begins after Round 0, implicitly excluding income earned and taxes paid during
Phase I. The limit of the infinite series defined by this sequence is
x′ ALY [ I - ZALY ] -1
This is the final, multiplied effect on local income, local government revenue collected from
persons, and local government revenue collected from businesses in Phase II of the model. The
tax structure for a particular local area, derived primarily from Census of Governments data as
described above, can be applied to this result in order to decompose local government revenue
into particular types of taxes and fees.
Phase III: The Ongoing Impacts
A distinguishing feature of the NAHB technique for estimating local impacts is the way it models
characteristics and behavior of new housing unit occupants, depending on the particular type of
unit being built. There are six basic variants of the NAHB model designed to accommodate
different varieties of residential construction:
1. Generic Single-Family
2. Generic Multifamily
3. Active Adult
4. Family Low-Income Housing Tax Credit (LIHTC)
5. Elderly LIHTC
6. Remodeling
The remodeling version of the model does not in general incorporate ongoing impacts, so it
requires no occupant income estimates. For the other five versions of the model, separate
occupant income estimates are derived in a way that vary with location as well as with the type
of units being built. The derivations are based on relationships between average income and
standard variables that are typically available at the local level. The methods for establishing
these relationships are summarized below.
Generic Single-Family. Regression of average income of home owners on area median

family income and average value of the units using American Community Survey (ACS)
microdata.
Generic Multifamily. Regression of average income of home owners on area median family
income and average rent using ACS microdata.
Active Adult. Average income of movers into age-restricted owner occupied units and average
income of all home buyers are computed from American Housing Survey (AHS) microdata the ,
and the ration of the two average incomes is formed/
Family LIHTC. Average incomes of all movers into rental units who have less than 60 percent
of median family income for the U.S. as a whole, computed from CE data.
Elderly LIHTC. Average incomes of all elderly movers into rental units who have less than 60
percent of median family income for the U.S. as a whole, computed from CE data.
The ACS is the Census Bureau’s replacement for the decennial Census long form
(http://www.census.gov/acs/www/). The AHS, funded by the U.S. Department of Housing and
Urban Development (HUD) and conducted by the Census Bureau, is the federal government’s
primary vehicle for collecting detailed information about housing units and their occupants at
the national level (http://www.huduser.org/datasets/ahs.html).
The ratios and regression results listed above allow the model to be simultaneously customized
to a particular area and a particular type of construction by inputting specific local information
that is generally available. When customizing to a local area, median family income for that
particular area is used. HUD produces median income estimates for all parts of the country in a
timely fashion as part of the process it uses to establish income limits for various housing
programs (http://www.huduser.org/datasets/il.html).
When it is necessary to translate rents into value or vice versa, a cap rate taken from the
Residential Finance Survey (http://www.huduser.org/datasets/rfs.html), also funded by HUD
and conducted by the Census Bureau, is used.
In addition to average income, estimated spending tendencies for movers into each type of
construction are needed. Separate spending vectors are estimated for each using household
information available in the CE data. The table on the following page shows average local
propensities to consume computed from the 2006 CE.
This modeling of average spending by different types of households soon after they move in is
another distinguishing feature of the NAHB local impact model. In addition to the function they
serve in the local model, average spending tendencies computed from CE data have also proven
to be of interest for their implications at the national level.6
This modeling of average spending by different types of households soon after they move in is
another distinguishing feature of the NAHB local impact model. In addition to the function they
serve in the local model, average spending tendencies computed from CE data have also proven
to be of interest for their implications at the national level.7
Compared to home buyers, renters tend to spend more of their incomes locally—partly due to
the tendency of lower-income households to spend a greater fraction of their incomes on
necessities, but also due to rental payments that go to a local owner, or owner employing a
management company with a local presence. The equivalent housing expense for a home
buyer would be a mortgage payment. Because mortgage payments typically are made to non-
local owners of the mortgage through non-local servicers, they are excluded from the spending
estimates in the NAHB local impact model.
Average propensities to spend on virtually all categories of local health care services are higher
for households moving into construction designed for older residents (age-restricted active adult
and elderly LIHTC).
As was described in Phase II, seven categories of commodities produced by local government
enterprises are added to the model, and a share of local spending (which may be zero) is
allocated to these enterprises instead of private producers based on revenues reported in the
Census of Governments for each local government enterprises in the area.
Also as in Phase II, Census of Governments data are used to estimate most categories of tax
and fee revenue generated for general (non-enterprise) governments in the area. The
exemption is residential property taxes. Perhaps surprisingly, residential and non-residential
property taxes are not reported separately. Moreover, some states have restriction on rate
increases of other laws that tend to make property tax rates different on new construction.
Particular developments (for example, those financed by the LIHTC program) may also be
granted special forms of property tax relief.
6
See, for example, the October Special Study in Housing Economics: “Spending Patterns of Home
Buyers.” http://www.nahb.org/generic.aspx?sectionID=734&genericContentID=106491&channelID=311
7
See, for example, the October Special Study in Housing Economics: “Spending Patterns of Home
Buyers.” http://www.nahb.org/generic.aspx?sectionID=734&genericContentID=106491&channelID=311
Example of Average Local Spending Computed from CE Data
All New New Active New New
House- Home Multifamily Adult Family Elderly
Output of industry purchased locally holds Buyers Renters Buyers LIHTC LIHTC
1 Greenhouse and nursery production 0.157% 0.481% 0.000% 1.052% 0.002% 0.000%
2 Power generation and supply 2.998% 2.802% 0.014% 3.979% 0.014% 0.000%
3 Natural gas distribution 1.634% 1.266% 0.000% 1.609% 0.000% 0.000%
4 Water, sewage and other systems 0.701% 0.728% 0.000% 1.011% 0.000% 0.000%
5 Residential permanent site construction 2.095% 1.962% 1.699% 4.289% 0.003% 0.008%
6 Residential maintenance and repair 1.455% 1.218% 0.021% 2.752% 0.055% 0.048%
7 Transit and ground passenger transportation 0.225% 0.018% 0.100% 0.026% 0.795% 0.723%
8 Retail trade 12.321% 9.591% 13.058% 12.455% 17.559% 14.564%
9 Newspaper and publishers 0.050% 0.026% 0.021% 0.029% 0.103% 0.082%
10 Cable and other subscription programming 0.893% 0.589% 0.833% 0.998% 1.337% 1.336%
11 Telecommunications 3.956% 2.721% 3.156% 3.476% 5.937% 4.753%
12 Internet service providers and web search portals 0.149% 0.127% 0.209% 0.168% 0.191% 0.062%
13 Nondepository credit intermediation and related 0.621% 0.722% 0.566% 0.630% 0.565% 0.222%
14 Insurance agencies, brokerages, and related 0.473% 0.408% 0.364% 0.568% 0.389% 0.395%
15 Monetary authorities and depository credit 0.611% 0.804% 0.132% 0.941% 0.081% 0.059%
16 Real estate 8.088% 1.250% 23.185% 1.092% 34.079% 35.198%
17 Automotive equipment rental and leasing 1.021% 2.148% 0.250% 0.877% 0.195% 0.102%
18 Video tape and disc rental 0.090% 0.086% 0.147% 0.124% 0.129% 0.032%
19 General and consumer goods rental 0.042% 0.014% 0.004% 0.010% 0.074% 0.035%
20 Legal services 0.306% 0.161% 0.644% 0.191% 0.237% 0.001%
21 Accounting and bookkeeping services 0.124% 0.120% 0.096% 0.233% 0.178% 0.296%
22 Photographic services 0.076% 0.094% 0.050% 0.065% 0.073% 0.010%
23 Veterinary services 0.251% 0.191% 0.093% 0.250% 0.123% 0.170%
24 Investigation and security services 0.018% 0.036% 0.000% 0.050% 0.003% 0.001%
25 Services to buildings and dwellings 0.268% 0.295% 0.079% 0.575% 0.061% 0.100%
26 Waste management and remediation services 0.219% 0.247% 0.000% 0.323% 0.000% 0.000%
27 Elementary and secondary schools 0.232% 0.291% 0.043% 0.255% 0.291% 0.000%
28 Home health care services 0.619% 0.255% 0.310% 0.987% 1.047% 3.004%
29 Offices of physicians, dentists, etc. 3.440% 2.515% 3.049% 6.274% 4.172% 10.280%
30 Other ambulatory health care services 0.708% 0.540% 0.372% 1.154% 0.756% 1.876%
31 Hospitals 3.295% 2.125% 1.774% 6.774% 3.001% 9.707%
32 Nursing and residential care facilities 1.383% 0.539% 0.656% 2.098% 2.233% 6.421%
33 Child day care services 0.258% 0.395% 0.315% 0.044% 0.342% 0.000%
34 Performing arts companies 0.220% 0.184% 0.397% 0.225% 0.307% 0.118%
35 Spectator sports 0.084% 0.060% 0.145% 0.045% 0.114% 0.021%
36 Fitness and recreational sports centers 0.423% 0.617% 0.307% 1.136% 0.223% 0.215%
37 Other amusement and recreation industries 0.113% 0.064% 0.019% 0.159% 0.483% 0.862%
38 Food services and drinking places 3.777% 2.979% 4.791% 3.847% 5.381% 2.685%
39 Automotive repair and maintenance 1.690% 1.226% 1.478% 1.278% 1.950% 1.009%
40 Electronic equipment repair and maintenance 0.038% 0.035% 0.057% 0.066% 0.024% 0.053%
41 Household goods repair and maintenance 0.159% 0.138% 0.021% 0.305% 0.042% 0.053%
42 Personal care services 0.757% 0.367% 0.344% 1.520% 1.231% 3.574%
43 Death care services 0.233% 0.059% 0.000% 0.180% 0.055% 0.057%
44 Dry cleaning and laundry services 0.387% 0.119% 0.184% 0.123% 1.297% 1.035%
45 Other personal services 0.239% 0.163% 0.145% 0.286% 0.217% 0.053%
46 Religious organizations 0.828% 0.943% 0.668% 1.573% 0.630% 1.033%
47 Civic, social, professional and similar organizations 0.022% 0.005% 0.008% 0.008% 0.011% 0.024%
For these reasons, when customizing the local impact model to a specific area, information
about property taxes on the units being built must be supplied by the entity requesting the
analysis. Phase III of the model counts only property tax on the value of construction,
assuming that the raw land would be taxed at the same rate if not developed.
Multifamily Phase III impacts are reduced to account for vacant units. By default, the single-
family version of the model assumes that units are intended for owner-occupancy and have
negligible vacancies. In the Census Bureau’s Housing Vacancy Survey (HVS:
http://www.census.gov/hhes/www/housing/hvs/hvs.html) homeowner vacancy rates are usually
in the neighborhood of only one percent.
For multifamily units, the average multifamily rental annual vacancy rate over the prior decade
and average annual multifamily homeowner vacancy rate over the prior decade are used,
depending on whether the units are condominiums or rental apartments. In other respects,
Phase III treats condo buyers the same as single-family home buyers (the income and spending
tendencies discussed above being based on buyers of owner-occupied housing units,
irrespective of structure type).
Although vacancy rates are known to fluctuate, the model estimates annual ongoing impacts
that are expected to persist for an extended period, so a long-term “natural” measure of
vacancy rates is more appropriate for Phase III than a very current, possibly anomalous,
number. The reduction for vacancies is applied to all Phase III multifamily impacts except for
property taxes, which are assumed to be paid by the owner of the property, whether the units
are occupied or not.
Local spending and taxes (including fees and charges paid to local government entities)
generate income for local residents, and this income will be spent and recycled in the local
economy, much as in Phase II of the model.
Let xn denote the initial income and tax column vector for new home occupants, An denote the
matrix formed from the consumption spending patterns of new home occupants, and otherwise
maintain the notation used in Phase II of the model. Then consider the following sequence:
Round 0 : x n'
Round 1 : x n' An LYZ
Round 2 : xn' An LYZ ALYZ
Round 3 : xn' An LYZ ALYZ ALYZ
.
.
.
K
Round K : x n' An LYZ ∏ ALYZ
k =1
The sum of these terms forms an infinite series that converges to the limit
x n' [ I + ( An - A) LYZ ][ I - ALYZ ] -1
When results are reported for Phase III the income earned by the occupants is subtracted from
the final multiplied effect, so that only income generated for occupants of housing units already
existing in the area is counted.
Note that, were new home occupants to spend the same fraction of their incomes on the
various local commodities as average households, An = A and the formula would simplify to
x n' [ I - ALYZ ] -1
The formula that produces a 267-element vector, the first 89 of which contain the added income
by industry, for Phase III is
xn' An L [ I -YZAL] -1
Again, the income in each industry can be disaggregated into business owners’ income and
wages and salaries, and the wages and salaries converted to full time jobs. These exclude any
jobs filled by occupants of the new housing units.
The formula that produces a 3-element vector showing the final, multiplied effect on local
income, local government general revenue from persons, and local general government revenue
from business generated in Phase III is
xn' An LY [ I - ZALY ] -1
As in Phase II, the last two elements of the final 3-element vector can be disaggregated to
show revenue generated by particular types of taxes, fees, and charges. The primary difference
in Phase III is that the increase in residential property tax revenue (which is introduced into the
model as a separate input independent of the Census of Government computations) needs to be
subtracted before the decomposition procedure can be applied.
Final Notes
All of the matrix operations in the NAHB local impact model are performed using the O-Matrix
package provided by Harmonic Software. The O-Matrix code used to generate Phase III
impacts for single-family construction in 2005, and the code used to compute a local total
requirements matrix the 1997 BEA input-output accounts are shown as examples of the use of
the O-Matrix package on the Harmonic Software web site
(http://www.omatrix.com/userstories.html).
The technical documentation on the NAHB model used to estimate the local income, jobs, and
taxes generated by home building was prepared by Paul Emrath, Vice President of Survey and
Housing Policy Research. For questions on the technical documentation, or on NAHB’s impact of
home building models in general, he may be contacted in NAHB’s Economics and Housing Policy
Group by phone at 202-266-8449, or by email at [email protected].

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The Local Economic Impact of

Typical Housing Tax Credit

National Association of Home Builders

Detailed Tables for a Family Tax Credit Development……………………………………. 4

Detailed Tables for an Elderly Tax Credit Development…………..…………………….. 9

Background and a Brief Description of the Model Used to Estimate the

Total One-Year Impact: Sum of Phase I and Phase II:

Local Business Local Wages Local Jobs

Phase I: Direct and Indirect Impact of Construction Activity:

$5,317,500 $1,450,500 $3,866,700 $501,800 80

$2,571,500 $850,300 $1,721,200 $325,000 42

Local Business Local Wages Local Jobs

Construction $3,707,200 $956,000 $2,751,100 $49,000 56

Manufacturing $500 $0 $500 $51,000 0

Transportation $8,400 $1,100 $7,300 $42,000 0

Communications $55,000 $16,800 $38,200 $75,000 1

Utilities $15,500 $6,000 $9,500 $84,000 0

Wholesale and Retail Trade $536,800 $98,200 $438,600 $37,000 12

Finance and Insurance $118,500 $9,600 $108,800 $83,000 1

Real Estate $172,900 $152,200 $20,700 $51,000 0

Personal & Repair Services $37,600 $14,200 $23,400 $33,000 1

Services to Dwellings / Buildings $21,000 $4,200 $16,800 $33,000 1

Business & Professional Services $517,900 $154,500 $363,400 $58,000 6

Eating and Drinking Places $17,700 $2,400 $15,300 $20,000 1

Automobile Repair & Service $17,800 $5,500 $12,300 $33,000 0

Entertainment Services $3,100 $600 $2,400 $45,000 0

Health, Educ. & Social Services $700 $200 $500 $38,000 0

Local Government $6,400 $0 $6,400 $54,000 0

Other $80,500 $29,000 $51,500 $44,000 1

Total $5,317,500 $1,450,500 $3,866,700 $48,000 80

B. Local Government General Revenue by Type

TAXES: USER FEES & CHARGES:

Business Property Taxes $17,400 Residential Permit / Impact Fees $304,300

Residential Property Taxes $0 Utilities & Other Govt. Enterprises $54,100

General Sales Taxes $38,400 Hospital Charges $23,400

Specific Excise Taxes $2,400 Transportation Charges $9,800

Income Taxes $10,400 Education Charges $10,300

License Taxes $600 Other Fees and Charges $28,500

Other Taxes $2,300 TOTAL FEES & CHARGES $430,400

TOTAL TAXES $71,400 TOTAL GENERAL REVENUE $501,800

Construction $119,000 $46,100 $72,900 $49,000 1

Manufacturing $500 $0 $500 $51,000 0

Transportation $8,700 $1,200 $7,500 $38,000 0

Communications $153,100 $52,300 $100,800 $74,000 1

Utilities $73,800 $29,100 $44,600 $84,000 1

Wholesale and Retail Trade $430,900 $81,100 $349,800 $32,000 11

Finance and Insurance $108,300 $9,800 $98,500 $74,000 1

Real Estate $453,700 $399,400 $54,300 $51,000 1

Personal & Repair Services $92,200 $42,400 $49,900 $33,000 2

Services to Dwellings / Buildings $22,200 $4,400 $17,800 $33,000 1

Business & Professional Services $243,900 $72,400 $171,500 $52,000 3

Eating and Drinking Places $126,300 $17,000 $109,300 $20,000 5

Automobile Repair & Service $62,100 $18,900 $43,200 $33,000 1

Entertainment Services $29,700 $8,200 $21,500 $37,000 1

Health, Educ. & Social Services $346,900 $43,700 $303,200 $49,000 6

Local Government $232,000 $0 $232,000 $50,000 5

Other $68,200 $24,300 $43,900 $35,000 1

Total $2,571,500 $850,300 $1,721,200 $41,000 42

B. Local Government General Revenue by Type