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The construction of new homes produces wave after wave of economic that benefits local citizens, businesses and governments in the community where the homes are built. These positive effects of residential construction are far-reaching, long-lasting and seldom fully appreciated.

The first wave of economic impact is produced by the construction of new homes. Building homes creates jobs for local workers, business income for all related industries and new local revenues for local governments.

During construction, local workers are employed in developing the site, building the home, supplying the materials, completing the legal and financial requirements and selling the home to new owners. Local businesses sell the materials and services needed to build, market and sell the home. A substantial portion of the income that these workers and businesses receive is returned to the local economy as they spend  the money they earn on food, clothing, housing, entertainment and the of the essentials of daily life. This "ripple effect" spreads home building money far beyond the people and businesses directly associated with residential construction.

The economic impact does not stop when the home is completed and occupied. The new residents then bring their spending power into the local economy, buying food, clothing, furniture and more. Roughly 30 percent of their income is spent on items produced by local businesses. More business for local establishments means even more jobs, income and spending as the "ripple effect" of new residents continues to generate commerce.

The new economic activity also generates additional revenues for local governments. The property tax that new home owners pay is only a small portion of the new revenues and taxes that local governments receive when businesses expand and sales increase. In a typical metropolitan area, the property taxes paid by a new home owner represent less than 40 percent of the total local government revenues generated by new residents according to the NAHB Economic Impact Model. Local governments also collect increased sales taxes (if a local add-on is present); income taxes (if imposed); user fees from government-provided services such as trash collection, hospital operation and utilities; business property taxes from new and expanding businesses; and other fees imposed by local governments.

The complete economic impact of residential construction on a local community is documented in a model developed by NAHB. The model estimates the economic power of home building in the initial construction phrase, the ripple effect as that new money spreads itself throughout the local economy, and the ongoing effect as new residents spend some of their income locally, further generating economic activity.

Taken as a whole, housing's economic engine contributes substantial revenues far beyond the home building industry that last indefinitely as people come to live and work where new homes are available.

Article published in the National Association of Home Builders Association "Smart Growth" publication.