The Role of Affordable Housing in Stimulating the Economy

The construction of affordable housing provides clear benefits for families whose wages aren’t sufficient to afford market-rate housing. However, the positive economic development implications of building or rehabilitating affordable housing are often overlooked. The Center for Housing Policy recently completed a review of current research on this topic, identifying a number of ways in which affordable housing development drives local economic growth and increases revenues for state and local governments.

The Center’s fact sheet and in-depth review of the literature provide illustrations of the impacts discussed here, as well as references to the supporting literature. But in short, the primary pathways by which affordable housing development positively impacts employment, local spending and government revenues can be summarized as follows:

Building affordable housing creates jobs and spending both during construction and after the homes are occupied.

It stands to reason that building or rehabilitating affordable housing creates jobs in the construction field. Less obvious is that this activity ripples through the economy, supporting businesses that supply the construction trade as well as retailers, health services and restaurants where newly employed workers spend their pay. The National Association of Home Builders estimates that building 100 new Low-Income Housing Tax Credit units for families can lead to the creation of more than 120 jobs during the construction phase. Furthermore, once the paint is dry and the homes are occupied, new residents continue to support roughly 30 jobs in a wide array of industries.

The development of affordable housing can help attract both new employers and a skilled workforce.

Many employers have reported that a lack of affordable housing makes it more difficult–and thus more costly–to recruit and retain employees. Surveys also suggest that the availability of affordable housing plays a role in where businesses decide to build, relocate or expand their operations. From an employer’s perspective, a lack of affordable housing can put a local economy at a competitive disadvantage.

When housing and associated costs such as transportation and utilities are affordable, families have more income to spend on local goods and services.

Affordable rent and mortgage payments can significantly increase the residual income that households have at their disposal after meeting necessary housing costs–by hundreds of dollars per month in some cases. Research shows that low- and moderate-income households are more likely than others to spend (rather than to save) this money to fulfill basic, but otherwise unmet, household needs such as food, clothing, healthcare and transportation. Local businesses stand to gain from the increased buying power made possible by the availability of affordable housing.

Affordable homes that are built in dense, mixed-use communities with access to public transit or job centers, as well as energy-efficient homes that reduce the use of fossil fuels, can help reduce overall monthly costs for working families. As long as the combined cost of housing, transportation and utilities remains affordable, both working families and local economies can reap the benefits because families have more to spend on local goods.

Investing in affordable homes increases revenues for states and localities.

When affordable homes are built or rehabbed, the funds flowing to cities and states can be considerable. Revenues can take the form of fees for permitting, zoning and utilities, or they can reflect sales, income or property taxes generated by the construction-related economic activity. Additionally, research has shown that a new affordable housing development is more likely to have a neutral or positive impact on property values than a negative impact. In situations where the impact is positive, higher property values can translate into higher property tax revenues for local governments.

Homebuyers who participate in an affordable homeownership program appear less likely to experience foreclosure than those who don’t, which can reduce government spending.

Recent research suggests that efforts to create affordable and sustainable homeownership opportunities for low- and moderate-income households can lower participants’ risk of delinquency and foreclosure. Beyond the obvious implications for neighborhood stability, reducing foreclosures can also reduce associated government costs, such as: costs for boarding the property and coordinating trash removal; court and legal expenses; increased police and social services for the affected neighborhoods; and, potentially, demolition of severely distressed properties. Affordable homeownership programs, therefore, represent a smart, fiscally sound mechanism for promoting housing and neighborhood stability.