This analysis estimates the economic impact of the South Carolina State Housing Finance and Development Authority on the state of South Carolina and its local regions. This brief section outlines the nature of economic impact analysis and how the regional impacts of SC Housing can be determined. 

The goal of an economic impact analysis is to establish the total impact, or contribution, of an organization to its local economic region. To determine the total impact of an organization, an economic impact analysis requires, as a starting point, the identification of a direct effect on the economy. This direct effect will, in turn, lead to additional economic ripple effects over a broader region. In this analysis, all direct effects represent the initial injection of new funding into a local area that is facilitated by SC Housing. 

For example, some of SC Housing’s Development Programs are designed to help finance the construction of affordable rental housing throughout the state through various public and private funding sources. When the construction of any new project begins, the economic impact of the construction activity directly facilitated by SC Housing is considered a direct effect. This includes all new economic activity in South Carolina that is generated from new expenditures made for labor (in the form of wages) and raw materials. 

NOTE: Affordable housing developments  generally take approximately 18 months to complete—from the time of ground breaking to when residents move into their new rental home. This means that the development is still under construction during the following year though no new activity is reported. In addition, factors such as regulatory or program changes, may affect program activity levels as well.

Such direct impacts, however, only represent the initial effects on the local economy. These initial direct expenditures (both labor and non-labor) lead to additional rounds of spending in the local economy, known more generally as the economic ripple effect or multiplier effect. These effects take two forms, the indirect effect and the induced effect. 

The indirect effect represents all additional rounds of spending that result from inter-industry linkages between local businesses as additional rounds of spending move through a supply chain. For example, when a builder taking part in any new construction activity purchases lumber from a local vendor, this lumber supplier will experience an increase in demand and have to purchase its own set of raw materials to satisfy this new demand. Moreover, if the new demand is high enough, it will also have to hire additional workers. 

The induced effect, by contrast, reflects all of the additional economic impacts that result from increases in household spending that occurs as the result of new wages and salaries that are introduced to the local economy. For example, consider any new employees that are hired to facilitate the increase in demand of the aforementioned lumber supplier. These employees will spend part of their income in the local economy on (for example) food, entertainment, and medical care. 

These successive rounds of indirect and induced spending do not go on forever. In each round, part of the money is “leaked out” of the local economy. For example, households may save a portion of their income or spend it outside of the local region. Businesses too, may purchase some of their inputs and supplies outside of the local economy. Spending that is leaked out cannot be used to support further economic activity in the local area. Thus, in each successive round of spending, the indirect and induced effects become smaller and smaller and eventually drop to zero. Because the successive rounds of spending eventually end, estimates can be generated for both the indirect and induced effects. 

In order to determine the statewide and local impacts of all SC Housing program initiatives, a detailed structural model (known as an input-output model) of the South Carolina economy was utilized. This model contains specific information on economic linkages between different industries throughout the state. It provides the means to assess how an initial round of new spending activity (known as the direct effect) can lead to successive rounds of spending (known as the multiplier effect). In order to ensure that the uniqueness of local economic dynamics is considered, the input-output modeling software IMPLAN is combined with other customized regional forecasting models that were developed. This allows for the inclusion of additional local data, industry knowledge, and ongoing economic growth trends. 

Economic output, employment, and labor income represent the three standard variables generally used to measure the major contributions of an organization to its local economy, as defined in Table 1 below.

Table 1 – Definition of Economic Impact Measures