Financial Sector Development in Africa: Opportunities ... - World Bank

Housing Finance 117
• The housing multiplier effect. This is a central argument in favor of housing
investment. The premise is that every unit spent on housing will generate
a multiple benefit for the economy, as it creates jobs through both
horizontal and vertical supply chains. This includes jobs in areas such as
raw material production, mining, cement production, timber, and aggregates.
In addition, there are also impacts on local economies where the
construction jobs are created, and in the service industries linked to
housing—such as mortgage lending, real estate agents, and retailers of
home goods such as furniture or white goods. Although this argument is
used regularly, there is no clear methodology or agreement on how to
calculate the multiplier effect. There are several country studies that
look at this effect, some of which are listed below. However, unfortunately,
very few have looked at the multiplier effect in emerging markets.
• United States. The multiplier effect accounts for the fact that income
earned in other sectors of the economy as a result of a home sale is
then recirculated into the economy. The National Association of
Realtors’ macroeconomic modeling suggests that the multiplier is
between 1.34 and 1.62 in the first year or two after an autonomous
increase in spending. This means that each dollar increase in direct
housing activity will increase the overall GDP by $1.34 to $1.62.
• Argentina. A 2006 study found that just on the production side of
raw materials and direct inputs for housing there was a 1.6 multiplier
effect. Further indirect employment effects are also present in
related industries (see Duebel 2007).
• Australia. The total multiplier for output and employment in the
construction industry is estimated by the Australian Bureau of
Statistics to be 2.866. So, for every $A 1 million increase in construction
output, there is an increase in output elsewhere in the economy
of $A 2.9 million (Duebel 2007).
• Scotland. Some of the most detailed work has been done looking at
multiplier effects for Scotland (Whitehead and Monk 2010). Whitehead
and Monk’s results show that the gross value added to the
economy through different multiplier effects and channels in housing
is higher than all other industries. Housing exhibits roughly a
twofold multiplier effect in Scotland, so for every British pound
(GBP) spent on housing, GBP 2 are generated for the economy.