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Homeownership-focused Community Development Financial Institution PT 2

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Sarah Giffin

I work for a Community Development Financial Institution. As a non-profit organization, our mission is to support the financial wellbeing of community members. One of the ways we do this is through homeownership services-- we are a one-stop shop for financial coaching, lending (including products such as down payment assistance to make homeownership more affordable), realtor services, and even develop our own affordable real estate in our region. 

While we are able to use IMPLAN to understand how our real estate development (construction) impacts the local economy, we want to find out how homeownership, as opposed to renting, is impacting the economy.  I have read the article "Housing: Owning, Buying, Selling and Renting" and as IMPLAN notes, "...homeownership generates wealth (the home can be rented out to others or saves the owner from having to pay rent)".

While the article describes that the homeownership and rent payment impacts are included as induced effects, it also suggests that you can get direct effects if an event is run in the Owner Occupied Dwellings Industry. I would like to understand how to run an Industry Output Event for the Owner Occupied Dwellings industry (or, a Commodity Output Event for the "Imputed rental services of owner occupied dwellings" commodity).

I want to model an event where renters buy homes and become homeowners, and understand the value and economic impact of this conversion from renter to homeowner. For example, if we sell, say, 10 homes to first time homeowners, what is the difference in their household spending, and therefore in the regional economy, now that they own their own home. 

What we know:

  • How many of our clients purchased a home
  • Which are first time homebuyers or were previously renting
  • How much they had previously been paying in rent
  • purchase price of the home
  • the amount homebuyers are now paying in housing costs as owners
  • We know that these renters are living in their homes and that these are not purely investment properties.

We don't know:

  • whether homeowners are renting out some of their property in addition to living there
  • to what extent first time homeowners are outfitting their home with new vs existing household products. 

 

  1. Can I indeed use the Owner-Occupied Dwelling Industry for an Industry Output Event? The Output Value would be "TOTAL VALUE OF HOMEOWNERSHIP". How does IMPLAN define this total? What is included?  If the price of the home/mortgage itself is not considered (because it is an asset transfer) what can we use as the "total value of home ownership"?
  2. Or would we use "Imputed rental services of owner-occupied dwellings"  commodity event? How is this commodity defined and calculated by IMPLAN?
  3. Is there a way to compare the scenario where our ten home buyers rent versus where our ten home buyers own a home?
  4. Do you have examples of this use case? I have combed through white papers and articles on Mixed Use Development and Residential Housing development and have not yet found this type of analysis. Looking forward to diving into this topic with you!
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    Candi Clouse, PhD

    Hey again Sarah!

    The construction of all these new homes is a great thing to analyze in IMPLAN. This is where the majority of the impact with your program seems to occur.

    Looking at the individuals moving from a rental property to a home they own gets a lot trickier. We have an industry for owner-occupied dwellings which is for home ownership and two industries for rentals. The problem with throwing all of their new mortgage payments into the owner occupied dwellings industry is that you are just moving that payment from one of the rental industries. The true wealth that comes from homeownership isn't realized in the short term, but instead if they are able to rent out their home for a portion of time (or rent out a portion of it), but more so when the home is sold or after the mortgage is paid off when they have additional disposable income to spend.

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    Sarah Giffin

    Thank you for your prompt reply! This is a tricky task, indeed!

    A few follow up questions:

    1. Our organization hires general contractors to build these new homes. Will it make a difference whether we model the production of new homes as an industry event vs a commodity event? Or, is it best to model it as an industry event by the "Construction of Single-family homes" industry because that's who we are paying to do the work?  

    2. Also, in what situation would somebody model an event type for Owner-Occupied Dwellings? Would this only make sense in a situation where we know that there is a change in the rate of owner occupants in a region? Or, that residents from outside the region are moving into the region? 

    3. And finally, if some of our new construction is rental, do we use the "imputed rent" commodity event to express the new income? 

    Many thanks. 

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    maria_lucas

    Hi Sarah,

    1. Since you know the industry these contractors work in, an Industry Output event is appropriate for analyzing the total cost of construction. 

    2. Owner-Occupied Dwellings is an Industry in IMPLAN to capture Household Spending for the maintenance and repair of the home and the overall value of home ownership. Therefore, if you can estimate an increase in home-ownership costs, this can be analyzed in the Owner-Occupied Dwellings industry as an Industry Output Event, but this Output value would need to be the imputed rental value of the home; including the cost of maintenance and repair, property taxes, plus the additional imputed rental mark-up. To capture the true impact, you'd want to only include new homeowners in the region that moved from outside of the region, or include a second event for the decrease in spending on rentals in the region using a negative Output value in Industry 448 - Tenant-occupied housing. 

    3. In addition to analyzing the construction of new rental properties, the rental costs can be analyzed separately as Output in Industry 448 - Tenant-occupied housing. 

    Best,

    Maria

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