A Cost-Benefit Analysis of Mixed-Income Revitalization Thomas D. Boston Professor of Economics Georgia Institute of Technology [email protected] Prepared for ANDP February 2, 2007 Acknowledgement The author wishes to thank Carol Naughton, Director of the East Lake Community Foundation and Renée Glover, Executive Director of the Atlanta Housing Authority (AHA) for facilitating access to data, resources and individuals during the conduct of this research. The author also wishes to thank the MacArthur Foundation for its continuing support of this research. The author is solely responsible for all errors and shortcomings. About the Author: Thomas D. Boston is a Professor of Economics at the Georgia Institute of Technology (Georgia Tech). He is the former editor of The Review of Black Political Economy and has written or edited six books on race and economic development including The Inner City: Urban Poverty and Economic Development in the Next Century (Transaction Publishers, 1997), co-edited with Catherine Ross. For a copy of the author’s most recent related publication see, “The Effects of Revitalization on Public Housing Residents” Journal of the American Planning Association, 71(4), autumn 2005.A Cost-Benefit Analysis of Mixed-Income Revitalization Thomas D. Boston Professor of Economics Georgia Institute of Technology Abstract This study examines the costs and benefits that have accrued to society as a result of the revitalization the East Lake Meadows public housing project into The Villages of East Lake (a mixed-income housing development). By using a control group, made up of three similarly situated housing projects that did not undergo revitalization, we estimated what would have happened at East Lake Meadows had revitalization not occurred. Actual 1998 to 2004 costs and revenues associated with the $131 million community investment were used and projected to the year 2012. Alone with evaluating the costs and revenues of operating the new mixed-income housing development, the net differences in outcomes between families in the control group and East Lake Meadows families were monetized and discounted to present value. Monetary values were assigned to outcomes such as the net benefit of lower crime and the added value of higher employment. We also monetized the added value of improvements made in the quality of learning and primary education, and of using housing vouchers to a greater extent. Public housing assisted families who were relocated from East Lake Meadows when it was demolished were examined longitudinally over a seven-year and ten-year period starting in 1995. We analyzed their long-term access to housing assistance, their socio-economic mobility and the quality of their destination neighborhoods. The results were compared to control group results. Contrary to popular belief, we found that families who lived in neighborhoods that underwent revitalization were no more likely to lose housing assistance than were families who lived in neighborhoods that were not revitalized. We also found that families who relocated with housing vouchers or who moved to a mixed-income development experienced much greater socio-economic mobility when compared to families who continued to live in housing projects. Our conservative estimate of the net gain in social welfare resulting from the revitalization of East Lake Meadows is $57 million. Today AHA and its private development partner have fully revitalized seven large public housing projects. Assuming the average social surplus created in each case is about the same, then Atlanta and society are better off by over one-third of a billion dollars. The government sector is a primary beneficiary of this social surplus through increased tax collections, reduced burdens on social services and increases in productive output resulting from greater employment. I argue therefore that the government should assist the revitalization activity by using this surplus to implement creative tax relief and housing subsidy policies that are designed to keep the revitalized neighborhoods affordable in the long-run. These policies should be especially targeted at low-income homeowners and renters who are community residents. 2A Cost-Benefit Analysis of Mixed-Income Revitalization The Georgia Aquarium hosted its 3 millionth visitor in August of 2006, just nine months after it opened. Over the last decade, the neighborhood surrounding the Aquarium has undergone a radical transformation. Until the mid-1990s, the Techwood Homes and Clark Howell Homes public housing projects were the most visible properties in the area. Violent crimes were so prevalent in the vicinity of these projects that the rate of occurrence was seven times higher than the City of Atlanta’s rate, and Atlanta had the highest rate in the nation. Today, this neighborhood contains some of the most attractive residential, commercial, and cultural developments in the Metropolitan area. In addition to the Georgia Aquarium, new construction in the area includes hotels, high-rise condominiums, mixed-income apartments, a high performing elementary school and early learning center, new townhomes, and retail and commercial office buildings. Furthermore, in the spring of 2007 the World of Coca-Cola will open its new exhibit in the area. After several failed attempts to improve Techwood and Clark Howell, the Atlanta Housing Authority (AHA) and its private development partners, demolished the housing projects and replaced them with Centennial Place, a new mixed-income community. To date, the AHA has undertaken the nation's most ambitious effort to transform distressed public housing projects and their surrounding neighborhoods into mixed-income communities. Seven conventional public housing projects have been completely revitalized, and nine new mixed-income communities have been created in their place. These new communities contain 3,404 units of mixed-income, mixed-financed apartments; 40.6% of which are reserved for public housing eligible residents, 23.1% are rent subsidized, and 36.3% are leased at market rates. In addition, the AHA is currently revitalizing three more conventional public housing projects that will add 2,433 mixed-income rental units; 32% of which will be reserved for public housing eligible residents, 28% will be rent subsidized, and 40% leased at market rates. The Authority also plans