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  • Metro Area Impact of Home Building in Knox County, TN

    Home building generates substantial local economic activity, including new income and jobs for residents, and additional revenue for local governments. The National Association of Home Builders has developed a model to estimate these economic benefits. 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 new homes becoming occupied by residents who pay taxes and buy locally produced goods and services. To fully understand the economic impact residential construction has on a local area, it is important to include the ripple effects and the ongoing benefits. Since the model was initially developed in 1996, NAHB has used it successfully to estimate the impacts of construction in over 800 projects, local jurisdictions, metropolitan areas, non-metropolitan counties, and states across the country.
    This report presents estimates of the metro area impacts of home building in Knox County, Tennessee. For purposes of the NAHB model, a local area must be large enough to include the places where construction workers live and spend their money, as well as the places where the new home occupants are likely to work, shop, and go for recreation. In practice, this usually means a Metropolitan Statistical Area (MSA), as defined by the U.S. Office of Management and Budget (OMB). Based on local commuting patterns, OMB has identified the Knoxville MSA as a metro area consisting of eight counties (Anderson, Blount, Campbell, Knox, Loudon, Morgan, Roane, and Union) in the State of Tennessee.
    In this report, wherever the term local is used, they refer to the entire metro area. The report presents estimates of the impacts of building 100 single-family homes representative of construction in Knox County.
    The NAHB model produces impacts on income and employment in 16 industries and local government, as well as detailed information about taxes and other types of local government revenue. Aggregate results are summarized below. Subsequent sections of the report show detail by industry and type of tax or fee revenue generated.
    The estimated one-year metro area impacts of building 100 single-family homes in Knox County include
    $30.8 million in local income,
    $3.6 million in taxes and other revenue for local governments, and
    403 local jobs.
    These are local impacts, representing income and jobs for residents of the Knoxville MSA, and taxes (and other sources of revenue, including permit fees) for all local jurisdictions within the metro area. They are also one-year impacts that 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 local 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 single-family homes in Knox County include
    $4.0 million in local income,
    $1.3 million in taxes and other revenue for local governments, and
    66 local jobs.
    These are ongoing, annual local impacts that result from the new homes becoming 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 raw land would be taxed at the same rate as the completed housing unit.
    The above impacts were calculated assuming that the new single-family homes built in Knox County have an average price of $377,683; which includes $10,000 in raw land value and $2,300 in permit and other fees paid to local governments; and incur an average property tax of $1,200 per year. The estimates also assume that a local sales tax of 2.25% is charged on construction materials. This information was provided by the Home Builders Association of Greater Knoxville.

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