Economic Analysis
The public housing redevelopment will need to be carefully financed if it is to be a long-run success. The goal is to create a development that is as cost-effective as possible, while still maintaining the comfort and safety of its future residents. A cost-benefit analysis is a common technique used to influence judgment as to the continuance or abatement of a particular project. To this end, several spreadsheets were generated to fiscally justify the project’s feasibility. A table was created to estimate and summarize the kinds of costs associated with rehabilitation. Initial costs, including materials and labor, made up the majority of expenditures; but there were also considerable long-term (15-year) maintenance costs. In similar fashion, a table was constructed to estimate and summarize the benefits to be expected from redevelopment. These benefits are by no means comprehensive, but are ones that can be monetized in dollar values. As with costs, some figures try to estimate the market value of non-market costs and benefits, such as positive and negative externalities.
The alternative to rehabilitating public housing is leave the Emerson Park area as-is. While cost tables are not currently available for this option, total costs are expected to multiply as residents leave Emerson Park, housing stock is deteriorated, land values decrease, tax revenues decline, and pollution from refuse and neglect increase.
As this is an important investment of city, state, and federal dollars, it is important to know how its value will change over time. What will annual costs and benefits be worth in 30 years, and how does inflation figure into the costs and benefits? Economic indicators point to a low inflation rate, so we have chosen a 3% rate. We wanted some funds to reinvest in housing maintenance 15 years from now, so we have chosen a fairly high discount rate (15%) to bring these values back to the present. Because of the uncertainty of the market, we have analyzed the differences between using a 15% and a 20% discount rate. Both tables illustrating this include the effective rate, which considers the effect of inflation on discounted costs and benefits.
The bottom line values suggest going forward with the public housing redevelopment. The increase in housing value, tax revenue, perceived safety, and amenities for residents will balance out the costs of rehabilitating or demolishing so many units. In addition, we believe that making Emerson Park a better place to live is a benefit of immeasurable value.
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