By Elliot Eisenberg, Ph.D., NAHB Senior Economist
While I often give presentations to builders and politicians about how important new home building is to the local economy, last month I had, for the first time, the pleasure of extolling the many virtues of remodeling and how important it is! The event was the summer meeting of the Remodelers of Central Illinois held at the offices of the Home Builders Association of Peoria and I was the invited speaker.
Rather than just plow through an endless supply of slides with graph after graph, as economists generally do, I began by first explaining how important residential construction is to the local economy. I then proceeded to compare it to remodeling activity. By the end of evening everyone was far more appreciative of what remodeling does for the local economy.
First, just like new construction, remodeling injects a tremendous amount of money into the local economy. Whether you build a $300,000 house or do a $300,000 remodeling job, both put money into the hands of local tradesmen (in the form of wages), local suppliers (in the form of purchases), and local governments (in the form of permits and sales taxes). And, once in the economy, that money creates a ripple as it passes from person to person. For example, a tradesman may spend part of his paycheck at a local restaurant. The waitress may then spend some of that money to get her car fixed and the mechanic may spend part of his income going to a chiropractor. While these transactions may be small, together they add up.
On average every $100 million of remodeling work creates 430 full time jobs, $2.9 million in local taxes and $47.7 million of local income. But don’t forget the ripple effect. It creates 350 more jobs, $2.8 million more in taxes and another $22 million of local income. Combined, the two phases result in 780 jobs, $5.7 million in taxes and $67.7 million in local income!
Thought of another way, every 10 jobs created during the remodeling phase leads to eight more jobs during the ripple phase while each dollar of tax revenue generated initially creates another tax dollar due to the ripple. Finally, every dollar of local income from the first phase creates 46 more cents of local income courtesy of the ripple.
Lastly, while new construction almost always results in a permanent boost to the local economy, there may well be a permanent boost from remodeling too. If the remodeling activity results in an addition to the structure then its taxable value rises and the flow of property taxes to all local governments rises.
After the presentation a very lively question and answer session that lasted well over an hour ensued. A number of very thoughtful questions were asked showing there is a real thirst for this knowledge. It was also clear that those in attendance left far more able to articulate how and why remodeling matters so much. I was gratified to have connected with the audience and hope to have another chance to address a group of remodelers soon.