Rural Resource Guides

The Effects of Housing Development on a Rural Community's Economy


The development of decent, affordable rural housing can improve the lives of those with inadequate shelter, while at the same time benefitting the local economy. There are several different methods to improve rural housing conditions: the local government can provide public housing; the individuals in need can join a self-help program to build their own housing; or a private or nonprofit group can develop affordable housing units. While these strategies affect the economy differently, each contributes to the economic development effects discussed below.


Building or renovating homes requires the services of a diverse group of persons and the products of many different industries. Initial land development activities will usually involve architects, lawyers, financiers and other consultants. As the project enters the building process, construction workers and specialized personnel like plumbers and electricians are needed. The development of rural housing creates jobs for those already living in the rural community, and encourages others to enter the community to fill the new demand in the construction-related professions. The Citizens’ Housing and Planning Association reports that housing construction and rehabilitation have a high ratio (62.3 percent) of value-added to total gross outlays. This means that a high percentage of the gross outlays for a residential construction project are available for wages and salaries, thus stimulating job creation.1 The U.S. Department of Agriculture’s Rural Housing Service estimates that each single-family home financed by the Section 502 program generates 1.75 jobs and $50,201 in wages.2

In addition, housing production requires an increase in transportation and trade services that can benefit a local economy. Building materials must be produced for the construction project, and people must be hired to transport those goods from their source to the building site. While many of these products must come from outside the community, some like milled timber and construction tools may be supplied by local businesses..


The economic impacts of developing housing extend beyond the construction stage to the years when the new homes or rental units are occupied by rural residents. The increased pride and responsibility that the residents feel for their dwellings often results in the consumption of goods and services to complement the new home. Beginning a life in a new home is often accompanied by the purchase of new appliances, new furnishings, and moving services. Later, other improvements may be made to the home itself including the addition of decks, new rooms, and landscaping. The new residences and the later improvements can encourage others in the community to take care of their own properties and common areas, ultimately stabilizing an area socially and reducing crime rates. Finally, new construction in rural areas is often accompanied by infrastructure improvements like paved roads, electrification, and water/sewer lines which encourage further housing development. An abundance of new housing can lower the cost of living for a community, making it attractive to new residents and industries.

Ripple Effect

The National Association of Home Builders found that the economic impacts listed above create a ripple effect that moves beyond the building-related professions to the entire local economy.3 Construction workers generally live close to the construction site, and thus spend a substantial part of their wages in the local community. Area businesses benefit from this increased patronage, from the sale of building supplies for the project, and from sales to the residents of the new units. The prosperity of the owners and employees of these businesses increases, allowing them to purchase more from other local ventures, and so the ripple continues and reaches more parts of the community than those directly related to construction.


The revenues of the state, local, and federal governments can increase as the result of a housing development project. There is an immediate increase in governmental income from building fees, taxes on workers’ wages, and taxes on the sale and transport of building materials. Increased sales taxes can also be expected as workers spend their wages and the residents purchase supplies and services for their new homes. In the long run, the local government will be able to generate revenue from property taxes and mortgage and deed transfer taxes. All these taxes add up so that even a small project can generate a great deal of government revenue.4 Officials in the Mississippi Delta region estimate that the construction of 20 homes worth over $50,000 each generates $1 million in tax revenue. Some of this revenue must be used to provide infrastructure and services to the homes, and in many impoverished areas some fees and taxes must be waived to make a project viable. However, the remainder of the increased government revenue may be used to encourage more housing development or improve services like education, and thus promote further economic development.


The impact of rural housing development on the local economy will vary by area and by project. The specifics of land values, local incomes, community culture, and tax structures will determine whether it is appropriate to build new units or rehabilitate older ones, and whether the new dwellings should be single-family homes or multifamily rental units. The exact economic impact of a project cannot be predicted without a detailed study of these individual circumstances, but it is clear that the development of rural housing has the potential not only to benefit those that receive the new dwellings, but to improve the economy of the entire community.


Table 1: One-Year Economic Impacts of the Development of 100 Housing Units5

Type of Units

Local Jobs Supported

Local Wages and Salaries

Local Business Owner’s Income

Local Taxes

Single Family











Table 2: Ongoing, Annual Economic Impacts After 100 New Units Are Occupied6

Type of Units

Local Jobs Supported

Local Wages and Salaries

Local Business Owner’s Income

Local Taxes

Single Family












1 Citizens’ Housing and Planning Association, Creating Jobs and Increasing Economic Development: The Economic Benefits of the 1997 Housing Bond Bill (March 1997).

2Maureen Kennedy, “Increasing Homeownership Through Partnership,” Rural Voices (Summer 1996).

3 Paul Emrath, “Local Impact of Home Building,” Housing Economics (March 1997), and Housing Policy Department, The Local Impact of Home Building in Average City, USA: A Brief Description of the Model (March 1997).

4 Sheryl Stolberg, “Moving from Shanties to a Subdivision,” Los Angeles Times (January 26, 1997).

5Adapted from the National Association of Home Builders’ The Local Impact of Home Building in Average City, USA: Income, Jobs, and Taxes Generated by Single Family Construction (March 1997) and The Local Impact of Home Building in Average City, USA: Income, Jobs, and Taxes Generated by Multifamily Construction (March 1997). The figures are based on an average metropolitan statistical area, and homes with an average construction value of $145,372.



This Information Sheet was prepared by the Housing Assistance Council. The work that provided the basis for this publication was supported with funding from the Ford Foundation.