NAHB Says Multifamily Tax Revenues Exceed Costs to Local Governments
By Caitlin Jones & A. J. Johnson
2 min read
Tax Credit Advisor May, 2006: The economic benefit of multifamily housing to local governments far outpaces its costs, according to a recent study from the National Association of Home Builders.
In a report issued in March, NAHB determined that although apartments initially cost local governments more than the taxes and fees they generate, they soon pay for themselves. For a typical multifamily complex containing 100 apartments, this annual “surplus” is $210,000.
The report determined that during the first year the 100 apartments are available to renters, local government outlays exceed revenues by $385,000. The cost burden to local government during this period totals $1.325 million: $125,000 in current expenditures to provide public services and $1.2 million in capital expenditures. On the revenue side, the apartments contribute $940,000 in taxes and other revenue.
In calculating the local government’s capital expenses during the first year, the study assumes an initial investment made on behalf of the apartments’ residents for schools, roads, water and sewer systems, and other items.
But after the first year, the annual cost burden of the 100 apartments is limited to services and ongoing infrastructure improvements totaling $251,000. On the revenue side, the apartments generate $461,000 in annual taxes and fees – netting $251,000 in surplus revenues.
Within two more years, these surplus revenues cover the local government’s initial cost burden, the report said. After 15 years, the 100 apartments create a total of $2.5 million in net revenue to the local government, based on $4.9 million in costs and $7.4 million in cumulative taxes and other revenues.
“The bottom line is that for a typical market area, new multifamily housing of average value per apartment pays for itself within a few years,” the report concluded. “The ongoing benefits accumulate faster than the ongoing costs, so that the apartments generate more than enough revenue to pay for current local government expenses in any one year.”
In preparing the report, NAHB used data from the U.S. Census Bureau.
