Group Title: Affordable housing issues
Title: Affordable housing issues ; vol. 14 no. 5
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Permanent Link: http://ufdc.ufl.edu/UF00087009/00028
 Material Information
Title: Affordable housing issues ; vol. 14 no. 5
Series Title: Affordable housing issues
Physical Description: Serial
Language: English
Creator: Shimberg Center for Affordable Housing
Publisher: Shimberg Center for Affordable Housing
Place of Publication: Gainesville, Fla.
Publication Date: August 2004
 Record Information
Bibliographic ID: UF00087009
Volume ID: VID00028
Source Institution: University of Florida
Rights Management: All rights reserved by the source institution and holding location.

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AF F O RD A B L E


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M.E. Rinker, Sr., School of Building Construction College of Design, Construction & Planning PO Box 115703,
University of Florida, Gainesville, FL 32611-5703 TEL: (352) 273-1192 SUNCOM: 622-7697 FAX: (352) 392-4364


Volume XIV, Number 5


August 2004


Since publishing "The Impact of Real Estate on the Florida Economy" in June 2003, the
Shimberg Center for Affordable Housing has received multiple requests to present the eco-
nomic impact information for smaller geographic areas. As a result, the Center has published
an "Update for 2004"using 2003 data at the metropolitan statistical area (MSA). The full
report is available on the Center's web site at www.shimberg.ufl.edu.
This newsletter summarizes the state-level content of the 2004 update report but does not
attempt to present information at the MSA geographic level. The newsletter is directed to a
general audience that is interested in the direct, indirect, and induced impact of the construc-
tion and real estate industry on Florida's economy?
The purpose of this report is to characterize the direct, indirect, and induced economic impact
of the real estate industry, broadly defined to include construction, on the economy in the state of
Florida. Before proceeding it is important to recognize some basic numbers.
I re*t Im~pa.


The direct impact of the real estate and
construction industry fundamentally consists
of construction- and real-estate-related trans-
actions.


The indirect impact of the construction and
real estate industry is the tax revenue generated
by the real property produced. Keep in mind
that only real property is included in this
discussion, personal property as part of the tax


I


H 0 S N









base is disregarded completely.
The 2003 Florida Property Valuations and Tax
Data publication shows the total number of real
estate parcels, their total assessed (also called
"Just") value, and total taxable value in each of
fifteen general land use categories. The 2003
totals show 8.85 million property parcels with a
total assessed value of $1.26 trillion and a total
taxable value of $894 billion. This $894 billion
taxable value generates approximately $20.36
billion in annual tax revenue with the state's
average millage rate of 18.96. These proceeds
fund county government, school districts,
special (water, sewer, etc.) districts, and munici-
pal ventures.
Building permit activity is used to analyze
the value of new construction in Florida. Using
Census Bureau data and the 2003 Florida Prop-
erty Valuations and Tax Data publication, new
construction in Florida in 2003 is valued at $34.4
billion. The total value of residential construc-
tion based on building permits is $28.0 billion
leaving $6.4 billion for non-residential new
construction.
A total of 722,621 real property parcel trans-
actions took place in Florida in 2002 with a total
sales value of $101.7 billion. These transactions
also generate fees for doc stamps, title transfers,
and brokerage commissions. These fees range
from 4 to 6 percent of the sales price. Using the
middle value of 5 percent, a conservative esti-
mate of the total demand for real estate transac-
tion services comes to $5.08 billion per year.






IMPLAN, an economic impact modeling
software program, is used to estimate the
impacts generated by non-residential construc-
tion, residential construction, and real estate


related transactions. When estimating the im-
pacts, the residential construction numbers were
divided into single-family construction and
multi-family construction to more accurately
model the impact, but only the combined impact
is presented in this report.
Three types of impacts are estimated for non-
residential construction, residential construction,
and real estate related transactions: direct effects,
indirect effects, and induced effects. Direct
effects are the changes in the industries to which
a final demand change was made. Indirect
effects are the changes made in inter-industry
purchases as they respond to the new demands
of the directly affected industries. Induced
effects typically reflect changes in spending from
households as income increases or decreases due
to the changes in production.




Output multipliers predict how much in-
creased economic activity in other industries is
caused by every additional dollar increase in one
specified industry. Here the direct impacts are
the non-residential construction, residential
construction, and the real estate related transac-
tions (estimated as 5% of sales in the MSA).
IMPLAN models these direct effects and gener-
ates indirect and induced effects to come up with
a total impact on the MSA economy. These
effects are then summed to get an estimate of the
total effect on the state: $6.4 billion of non-
residential construction generates a total of
$11.96 billion of economic activity, the $28 billion
in new residential construction generates a total
of $48.4 billion in economic activity, and the
$5.08 billion in real estate related transactions
generates a total of $7.12 billion in economic
activity.











The $6.4 billion of non-residential construc-
tion generates over $5.3 billion in earnings. The
$28 billion in new residential construction
generates a total of $17.5 billion in earnings. Of
this $17.5 billion, the workers building the new
residential construction directly earn $9.2
billion. There are also $4.5 billion of indirect
earnings and $3.8 billion of induced earnings.
An example of an indirect earner would be
someone involved in mining the raw materials
used to make the concrete that is be used in the
new construction, and an example of an in-
duced earner would be a waiter who is hired
due to increase spending by the newly hired
construction workers. The real estate related
transactions generate a total of $1.35 billion of
earnings.





Here the direct impacts are those workers
hired to build the new construction or to com-
plete the real estate transactions. The indirect
impact would be a new miner hired by a con-
crete manufacturer due to the increase in con-
struction, and the previously mentioned waiter
would be an example of an induced effect. The
total impact on employment is 150 thousand
jobs due to non-residential construction, 509.5
thousand jobs due to residential construction,
and 62,000 jobs due to real estate related trans-
actions. Therefore, over 720 thousand jobs in the
state of Florida are related to real estate in some
manner.


* Real estate &
Construclion
" Other industries


The multiplier estimates above do not include
investment ("unearned") income from real
estate. Because real estate is considered a factor
of production that generates a return, such
returns from real estate should also be regarded
as an "impact". All real estate parcels provide
either an explicit rent (if they are rented or
leased), or an implicit rent to the owner who
would otherwise have to pay rent in lieu of
ownership.
Obviously, different parcels (with different
land uses and different locations) will generate
different returns. RealtyRates.com surveys the
return expectations of a representative sample
of large institutional investors each quarter.
Published in their quarterly Market Survey, this
survey provides insight into the required yields
(capitalization rates) used by large investors
when making acquisitions. The mean required
yield for 2003 investments in all property types
was 9.94 percent.
According to the Florida Department of
Revenue, the total just value of all real estate is
approximately $1.26 trillion. Applying a 9.94
percent yield rate to the $1.26 trillion of market
value suggests that real estate owners in Florida
earn approximately $125.6 billion in investment
income annually.


Florida 2001 Gross State Product


600
50D


400 --
300


200
100


0 -











Ad valorem taxes generated by Florida's
construction and real estate industry exceed
$20.36 billion annually and are used primarily
for school districts, county government, and
municipalities. The economic impact from
residential construction is approximately $48.4
billion, and the economic impact from non-
residential construction is approximately $11.96
billion. The impact from real-estate-related
transactions is $7.1 billion, generating a total
impact of $67.46 billion. In addition 722 thou-
sand jobs with annual earnings of nearly $24.2
billion are associated with these activities.
Finally, there is an investment return to prop-
erty owners of approximately $125.6 billion
annually.


Total estimated impact on the Florida
economy of the real estate and construction
industries is $237.6 billion annually.
It is clear from these numbers that the con-
struction and real estate industries represent a
significant portion of the Florida economy.
According to the Commerce Department's
Bureau of Economic Analysis the gross state
product of all industries in Florida in 2001 (the
most recent report available) was $491.488
billion. The total annual economic impact of the
construction and real estate industries as dis-
cussed comes to $233.9 billion or 48.3 percent of
the gross state product.


Affordable Housing ISSUES is prepared bi-monthly by the Shimberg Center for Affordable Housing for the purpose of
discussing contemporary issues facing affordable housing providers. Reproduction of this newsletter is both permitted and
encouraged. Comments or questions regarding the content are welcome and should be addressed to Robert C. Stroh, Director.


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