Chapter 2: What’s the best investment for the State to make?

In commercial real estate, we use the concept of “internal rate of return” (IRR), to compare investments. Whether it’s a retail shopping center or baseball cards, every investment involves a cost  at the outset, and a return over time. 

Let’s consider investing in affordable housing compared to defending against the future hypothetical costs of climate change. 

 

For climate change, we've gotten nothing. (You can argue, but I’d like to see your facts.) The U.S. Government Accounting Office (GAO) can’t figure out what benefits taxpayers are getting from the many billions of dollars spent each year on policies that are purportedly aimed at addressing climate change. (http://www.forbes.com/sites/larrybell/2011/08/23/the-alarming-cost-of-climate-change-hysteria/).  We have a drought, but it’s a stretch to blame the drought on climate change.  Maybe the forest fires are worse, but the logic is self-referring: if we had spent more money in the past, things might be better today. I’d like more support. (Climate change threatens future problems, but I don’t know anyone that’s been killed or injured by climate change).

What benefit did the State receive for its investments in affordable housing prior to 2011? A recent study of California affordable housing developments (peer-reviewed by an economist at U.C. Berkeley) found:

• Access to affordable housing improves education outcomes by reducing the mobility of low-income families
• Affordable housing improves resident health by reducing exposure to environmental hazards and frees resources to pay for health expenses and food
• Citing NAHB’s economic impact of home building model, the report notes that construction of LIHTC units generates jobs, taxes and economic income
• NAHB estimates that in a typical year the affordable housing credit supports 96,000 jobs
• The report also noted affordable housing yields an increase in regional competitiveness by lowering local housing costs and increasing employee retention
•  Challenges the notion that affordable housing developments reduce neighboring property values, and notes that well-maintained properties may raise values in distressed neighborhood
• Affordable housing saves taxpayer money by reducing demand for other government services, including homeless, health and other social program
• Improves commuting behaviors when locating near transit options.

And the state gave out loans, not money. The money was paid back by developers with interest. Investment in affordable housing by state and local governments creates immediate, concrete benefits, while climate change investment is long-term and hypothetical.

 

Back to my IRR analysis....

 

·         No one can say with certainty how much financial return our present investment in climate change will produce. This, alone, makes the investment a poor choice.

·         In spite of my research, I could not find _­­an accounting of the money spent by the California Tax Credit Allocation Committee for affordable housing over the years. Still working on it. However, there are 49,000 housing units that are available to families and individuals at below-market rents. That's something concrete.

In the absence of facts, it’s hard to have a reasonable discussion. Stay tuned.