"Promoting housing affordability by combating exclusionary housing policies"


CFC # 41863 (Combined Federal Campaign) 

Studies: new housing is not a drag on local budgets


A recent study by the nonprofit group Housing Virginia addresses the “common misperception among local government officials” that “new housing is a drag on local budgets,” and that new homes consume more local tax dollars, through services they require, than they generate through local taxes. Housing Virginia, The Effects of Housing on the Local Economy, p. 5 (Dec. 2011), posted at http://www.housingvirginia.org.

Those concerns influence many local governments to plan for, and permit, an insufficient amount of housing for their workforces. Housing Virginia concludes:

Contrary to the common misperception, housing is not a drag on the local tax base but a contributor to the local tax coffers. The analysis in this paper indicates that housing values are typically sufficient to cover the costs of education and total local government expenses (including education). If the indirect and induced impacts of new homes to a community were added to the equation, the conclusion would be even more dramatic and compelling that housing is a fiscal asset to the community not a liability.

Id., p. 7. That study specifically analyzed five regions of Virginia during fiscal year (FY) 2010 -- the Charlottesville MSA, George Washington Regional Commission (Fredericksburg), Lynchburg MSA, Middle Peninsula and Roanoke MSA’s.

Of course, even if new housing for local workers were a drag on the local tax base—when considered in isolation from the tax revenue generated by those workers—that would be no excuse for a local government to exclude them as residents. Such exclusionary policies are bad public policy because they increase many problems unnecessarily, such as:

  • urban sprawl (with its many undesirable environmental effects),
  • traffic congestion and commuting times,
  • needless motor fuel consumption,
  • road building and maintenance costs,
  • housing market hyper-inflation and deflation,
  • poverty, and
  • homelessness.

In fact, exclusionary zoning—a prominent exclusionary policy—already has been declared illegal in many states (including Virginia). See “Exclusionary Housing Policies” on Top Menu (above).

And planning for, and permitting, enough private-sector housing for the workforce doesn’t cost government anything, in and of itself. It just requires local governments to do their planning and land use regulation right, as regards housing. Further, if local jurisdictions encouraged the building of enough private-sector housing, government housing assistance expenditures could be much lower per person, because housing costs would be much lower.

For the most part, local governments have not publicized the figures and methodology in analyses done for them on the overall fiscal effects of new residents. However, certain analyses are available that support the same general conclusion as the Housing Virginia study. For example:


Town of Herndon (VA) study (2011)


As part of its recent Metrorail-area planning (discussed below), the Town of Herndon had consultants analyze the effects on its finances of new businesses, workers and residents in the Metrorail area. The consultants forecast net tax revenues of almost $6.5 million annually, as of 2035 (based on 2011 dollars), due to as many as 13,425 new workers (and their businesses) in that 38-acre core area.

By contrast, the consultants forecast that there would be a net annual cost to the Town of about $106 per new housing unit as of 2035 (about $250,000 annually, based on 2,357 new housing units). Thus, the net costs of new residents would be – at most – about 4 percent of net revenues from new workers and their businesses. At that rate, the Town could properly balance its total number of jobs and housing units for only a fraction of the new revenues it anticipates from the Metrorail area.

The forecast of a net $106 annual cost per new housing unit likely is an overestimation. For one thing, the consultants calculated the tax revenues and expenditures attributable to new residents entirely separate from tax revenues and expenditures attributable to new workers and their businesses. If any of those new workers are able to find housing in the Town (granted, they would have to be high-paid, as things now stand), they would be generating substantial net revenue to the Town – not net expenditures.

But even if there were a net annual cost of $106 per new unit, that amount would be insignificant. For example, Town residents likely would see their housing costs decline much more than that. As of 2008, the Town had housing for less than half the number of people who worked there, and little housing has been produced since. Such housing shortages cause hyperinflation and instability in housing prices. Median housing prices in the Town’s 20170 zip code rose by 39 percent – more than any other zip code in the Washington area -- between 2008 and 2011.

Clearly, the Town of Herndon could cure its imbalance of jobs and housing units and grow much wealthier at the same time.


Other notable studies


The findings by experts that residents basically pull their fiscal weight are not all recent. Classic works in the field stated that conclusion decades ago. See, e.g., Richard F. Babcock, The Zoning Game 42 (U. Wisconsin Press, 1966) (residential developments “are popularly believed to add less to the tax base than the cost of municipal services they create, a myth which has been exposed by Ruth Mace in the book she edited, Municipal Cost-Revenue Research in the United States [(U.N.C. Press 1961)].”

There are studies that show that housing is a net drain on local finances where the residents involved have school children. However, these studies are flawed because they assume that houses are perpetually occupied by school-age children. That is not the case. And of course, educated children are assets, not liabilities – both to their families and their community.

Local governments need to plan and permit ample opportunities for housing affordable to their workforces (plus a fair share of the region’s unmet housing need), as near as possible to where people work. New businesses generally create immensely greater net revenues to the local government than any net costs their workers create as residents. And the studies noted above illustrate that generally there is little or no net cost to local governments from new residents alone.