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Default water heater and recirculating system

This question is about building instead of repair, but I don't see a
better place to ask.

We are building a house with a garage and three small living floors
above it. The plans originally called for one of the instant on water
heaters (running on natural gas) on the second living floor. The way
the house is laid out, it would have to vent towards the street. In
order to keep from venting towards the street, the builder wants to
put the water heater in the garage and use a recirculating pump
system. The way I understand it, the heater comes on when there is
water flow. The recirculating pump would keep water circulating all
of the time, so the heater would be on all of the time, right? Does
this sound like a good plan?
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