A recent release from the American Enterprise Institute harkened back to Milton Friedman’s discussion of the now famous I, Pencil essay by Leonard Read. In short, I, Pencil tells the story of a pencil and the multitude of factors that go into its assembly. Where does the wood come from? How is it transported? What goes into the production of the graphite? Of the rubber eraser? How does the reach of a simple pencil extend to the lumber industry, the mining industry, the food service industry, the shipping industry, and so on?

“The positive effects of the housing market far exceed the mere buying and selling of homes.”

A video explanation presented by the Competitive Enterprise Institute can also be seen here. The point (no pun intended) is to illustrate the market’s ability to bring disparate elements and industries together to create a product, and to demonstrate that the benefits of such commerce extend far beyond the mere buying of a pencil at an office supply store.

This concept can be quite aptly applied to the housing market as well. Consider the relative simplicity of a pencil versus the comparative complexity of a home. Consider how many more moving parts are involved in the construction, buying, selling and upkeep of a home. Similar to the pencil, raw material markets are involved in the construction of a house such as lumber and steel, but even more industries are required for a house’s construction including architectural, engineering and construction firms. All of these require food and transportation to function as well, further spreading the effect. It becomes easier to see why, according to the Bureau of Economic Analysis, the housing market typically accounts for 17-18% of GDP.

Once the outer structure of a house is completed, it needs to be filled with all manner of other things to truly make it a home. Furniture, utilities and appliances all bring their own multifaceted webs of production into the mix. And these are just the physical needs of a home. Financial services such as banking, appraisals and insurance are also necessary in the process of creating a home. By the time all of these industries have played their role in collecting, shipping, manufacturing, processing, financing, constructing, selling and maintaining a home, the plethora of factors that are involved are astronomical.

So, what does this mean? It means simply that the positive effects of the housing market far exceed the mere buying and selling of homes. In a recent study from the NAHB, the construction of 1,000 homes brought with it 2,970 full-time jobs, $162 million in wages, $118 million in business income and $111 million in tax revenue. And that’s just one piece of the puzzle! In a world where a mind-boggling chain of production extends from a single home, the importance of the housing market cannot be overstated.

Beyond the multitudinous benefits of owning a home to the homeowner themselves, the positive economic impacts ripple across a host of industries, firms and countries, highlighting the important role housing plays in the global marketplace.

Connor Currie contributed to this blog post.