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Thursday, March 30, 2006

 

Lowry Redevelopment

This article in the Rocky Mountain News talks about the redevelopement of Lowry Air Force Base in Denver and the positive economic impact it's had on the city. It says that while Denver invested $1.37 million into the redevelopement of Lowry, the area has provided $5.7 billion in economic benefits, $3.3 billion of which has benefited the Denver area. I can't quite tell if it's talking about tax benefits (which would be a transfer) or if it's talking about economic activity within the area such as jobs and the like, though the article does use "economic activity," so it seems the latter is more applicable.

Regardless of how they got their definitions, readers should be a bit skepticle of the study when they see that there is a "240,776% return to Denver on its initial investment." Since you can't do a whole lot with$1.37 million in terms of development, I assume that Denver spent that money planning the development of Lowry. Another clue regarding government intervention is when it mentions price controls on housing.

"The Lowry Community Land Trust has sold 100 affordable homes priced from $115,000 to $167,000, with another 86 homes planned or under way priced from $138,000 to $167,000. And another 100 homes are being sold with no price controls, starting at $150,000, according to the report."

Given these price controls, price controls probably set by planners, it's possible if not probable that Denver's investment actually COST them money in economic activity (by whatever standards they used, which themselves could also be suspect). The $1.37 million Denver spent could have hindered the redevelopment of the area, especially given its location close to Cherry Creek and Downtown Denver. With such a high demand for land in the area, it would be easy to imagine the "benefits" being much greater. Unfortunately, Denverites can't compare these current results with identical results if Denver had just left it alone.

Comments:
It would be good to be skeptical of any "benefit" study produced by government about it's own activities. There is, in my experience, not a very large probability that such a study will provide estimates of actual economic benefits.

And, would you expect that government efforts at redevelopment could, in principle, generate positive net benefits? I suggest you would say it was only possible, not to mention likely, if there were some source of market failure that we would expect to result in to little redevelopment. Can you think of any such source of market failure in this case?
 
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