MARKET-RATE HOUSING
Simons and Sharkey (1997) have analyzed subsidizing new inner city housing in Cleveland, Ohio. The subsidy programs support both affordable and market-rate housing. The researchers focus on the fiscal costs and benefits to the city and assess the effectiveness of subsidy programs by examining 10 new housing projects started between 1990 and 1993. Costs include expenses for preparing lots, making infrastructure improvements, granting property tax abatements and offering financial incentives to facilitate purchase. Benefits include increased property taxes (in the long run), indirect property tax increases from neighboring properties, income tax revenue from new residents and income tax from construction jobs.
In their sample, they found an overall cost-benefit ratio of 2:1. While this suggests that housing subsidies are not economically efficient, the authors recognize that the cost-benefit ratio excludes many important non-quantifiable or intangible benefits (e.g., benefits of homeownership to residents and neighbors, removal of blight), as well as positive effects on neighboring jurisdictions.
While the level of support extended by the city did not appear to be sustainable in the long run, the subsidy programs did appear to succeed in generating new housing starts, which was the desired outcome. The researchers argue that the cost-benefit ratio of new construction should be compared with that of older housing unit rehabilitation to determine which approach is more efficient.
However, they acknowledge that the political benefits of rehabilitation
often do not match those associated with new construction. They also recommend
that policy makers weigh the political and fiscal advantages of attracting
middle-income residents back into the central city by supporting market-rate
housing rather than upgrading the housing of existing residents.