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The external benefits of government subsidized rehabilitation programs Tucker, Earl Nathan 1983

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THE EXTERNAL BENEFITS OF GOVERNMENT SUBSIDIZED REHABILITATION PROGRAMS BY EARL NATHAN TUCKER B.Com., The U n i v e r s i t y of B r i t i s h C o lumbia, 1981 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTERS OF SCIENCE i n B u s i n e s s A d m i n i s t r a t i o n i n THE FACULTY OF GRADUATE STUDIES Commerce and B u s i n e s s A d m i n i s t r a t i o n We a c c e p t t h i s t h e s i s as c o n f o r m i n g t o the r e q u i r e d s t a n d a r d THE UNIVERSITY OF BRITISH May 1983 (c) E a r l Nathan T u c k e r , COLUMBIA 1983 In presenting t h i s thesis i n p a r t i a l f u l f i l m e n t of the requirements for an advanced degree at the University of B r i t i s h Columbia, I agree that the Library s h a l l make i t f r e e l y available for reference and study. I further agree that permission for extensive copying of t h i s thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. I t i s understood that copying or publication of t h i s thesis for f i n a n c i a l gain s h a l l not be allowed without my written permission. Department of G^^aree and Business Administration The University of B r i t i s h Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 Date April 19, 198?, DE-6 (3/81) I I ABSTRACT T h i s t h e s i s examines the h y p o t h e s i s t h a t government h o u s i n g p o l i c i e s - i n p a r t i c u l a r r e h a b i l i t a t i o n p o l i c i e s - c r e a t e p o s i t i v e s p i l l o v e r e f f e c t s ( e x t e r n a l i t i e s ) t o s u r r o u n d i n g homes, b u i l d i n g s , and p r o p e r t y v a l u e s i n g e n e r a l . These e f f e c t s a re examined f o r two r e a s o n s : (a)There i s a l a r g e body of l i t e r a t u r e f o c u s s i n g on e x t e r n a l i t i e s c r e a t e d by government h o u s i n g p o l i c i e s , but v e r y l i t t l e of t h i s t h e o r y has been t e s t e d e m p i r i c a l l y ; (b) The r e c e n t i m p l e m e n t a t i o n of r e h a b i l i t a t i o n p o l i c i e s have been based i n p a r t on the e x p e c t a t i o n t h a t the p o l i c i e s c r e a t e p o s i t i v e neighborhood e f f e c t s . In t h i s s t u d y , an e m p i r i c a l a n a l y s i s i s performed on one r e h a b i l i t a t i o n program — the Canadian R e s i d e n t i a l R e h a b i l i t a t i o n A s s i s t a n c e Program (RRAP). The program i s a n a l y z e d v i a m u l t i v a r i a t e r e g r e s s i o n a n a l y s i s t o determine i f any e x t e r n a l i t i e s a r e c r e a t e d by t h i s h o u s i n g p o l i c y . The d e t e r m i n a t i o n of e x t e r n a l i t i e s i s i m p o r t a n t i n u n d e r s t a n d i n g the f a c t o r s a f f e c t i n g neighborhood change. T h i s s t u d y i n v e s t i g a t e s the r e l a t i o n s h i p between e x t e r n a l i t i e s and e x p e c t a t i o n s and d i s c u s s e s how these f a c t o r s can have l a r g e impacts on r e i n v e s t m e n t p a t t e r n s which c r e a t e p o s i t i v e n e ighborhood change. The e m p i r i c a l f i n d i n g s of t h i s study i n d i c a t e t h a t t h e r e a re no e x t e r n a l i t i e s c r e a t e d by the RRAP program. T h i s r e s e a r c h s u g g e s t s t h a t such programs be implemented on the b a s i s of the i n d i v i d u a l b e n e f i t s f o r the r e c i p i e n t . The f i n d i n g s imply t h a t I l l s i m i l a r r e h a b i l i t a t i o n programs w i l l not c r e a t e p o s i t i v e e x t e r n a l i t i e s or e x p e c t a t i o n s and, hence, cannot be f a c t o r s a f f e c t i n g neighborhood change. As a r e s u l t , p o l i c y a n a l y s t s s h o u l d c o n c l u d e t h a t programs s i m i l a r t o RRAP s h o u l d not be implemented s o l e l y on the b a s i s t h a t t h e r e a r e i n d i r e c t e x t e r n a l b e n e f i t s t o the neighborhood. IV TABLE OF CONTENTS A b s t r a c t I I Tab l e of C o n t e n t s IV L i s t of T a b l e s VI L i s t of F i g u r e s V I I I Acknowledgement IX Chapter 1 P r e f a c e 1 .1 Overview 1 1.2 I n t r o d u c t i o n 2 1.3 Government Housing p o l i c i e s 3 1.4 The R o l e of R e h a b i l i t a t i o n 7 1.5 The Framework of The Study 11 Chapter 2 A Review of the L i t e r a t u r e 2.1 P r e v i o u s E m p i r i c a l S t u d i e s of The E x t e r n a l B e n e f i t s of Government S u b s i d i z e d R e h a b i l t a t i o n 14 2.2 Government I n t e r v e n t i o n and Neighborhood Change 22 2.3 The D e t e r m i n a n t s of P r o p e r t y V a l u e s 28 Chapter 3 R e h a b i l i t a t i o n Programs In Canada 3.1 The R e s i d e n t i a l R e h a b i l i t a t i o n A s s i s t a n c e Program 39 3.2 P r i o r E v a l u a t i o n s of RRAP 46 3.3 The Neighborhood Improvement Program 48 V Chapter 4 The Study Area And Methodology 4.1 The Study Area 53 4.2 The Data 62 4.3 The Methodology 70 4.4 L i m i t a t i o n s and Sources of E r r o r 72 Chapter 5 The R e s u l t s 5.1 I n t r o d u c t i o n 73 5.2 A n a l y s i s V i a O r d i n a r y L e a s t Squares R e g r e s s i o n 73 5.3 A n a l y s i s V i a P r i n c i p a l Component R e g r e s s i o n 82 5.4 A n a l y s i s V i a F a c t o r L o a d i n g M a t r i c e s 88 Chapter 6 Summary And C o n c l u s i o n 6.1 The I m p l i c a t i o n s 111 6.2 Recommended Areas For F u t u r e R e s e a r c h 116 S e l e c t e d R e f e r e n c e s 120 Appendix 1 128 VI LIST OF TABLES T a b l e Page 1 D e s c r i p t i v e S t a t i s t i c s of RRAP R e c i p i e n t s (Homeowners)...41 2 D e s c r i p t i v e S t a t i s t i c s of RRAP R e c i p i e n t s ( L a n d l o r d s ) . . . . 4 2 3 P e r c e n t a g e D i s t r i b u t i o n of RRAP U n i t s by Type of R e p a i r s 43 3a Comparative Data Between K e n s i n g t o n and Vancouver 56 4 NIP E x p e n d i t u r e s i n the Study Neighborhood 61 5 RRAP E x p e n d i t u r e s i n the Study Neighborhood 61 6 D e s c r i p t i o n of The V a r i a b l e s 63 7 O r d i n a r y L e a s t Squares R e g r e s s i o n R e s u l t s w i t h RRAP d e s c r i b i n g t h e d i r e c t E f f e c t 74 8 O r d i n a r y L e a s t Squares R e g r e s s i o n R e s u l t s w i t h RRAPAMT D e s c r i b i n g the D i r e c t E f f e c t 76 9 M o d i f i e d C o r r e l a t i o n M a t r i x f o r 1978 Government I n t e r v e n t i o n V a r i a b l e s 79 10 M o d i f i e d C o r r e l a t i o n M a t r i x f o r 1979 Government I n t e r v e n t i o n V a r i a b l e s 80 11 M o d i f i e d C o r r e l a t i o n M a t r i x f o r 1980 Government I n t e r v e n t i o n V a r i a b l e s 81 12 P r i n c i p a l Component A n a l y s e s w i t h RRAP D e s c r i b i n g the D i r e c t E f f e c t of Government R e h a b i l i t a t i o n 84 13 P r i n c i p a l Component A n a l y s i s w i t h RRAPAMT d e s c r i b i n g t h e D i r e c t E f f e c t of Government R e h a b i l i t a t i o n 86 14 Varimax F a c t o r L o a d i n g M a t r i x (RRAPAMT) 1978 89 15 R e g r e s s i o n R e s u l t s of P r i n c i p a l Components (RRAPAMT 1978) 90 16 Varimax F a c t o r L o a d i n g M a t r i x (RRAP) 1978 91 17 R e g r e s s i o n R e s u l t s of P r i n c i p a l Components(RRAP) 1978....92 18 Varimax R o t a t e d F a c t o r L o a d i n g M a t r i x (RRAPAMT) 1 979 93 19 R e g r e s s i o n R e s u l t s of P r i n c i p a l Components (RRAPAMT) 1979 95 V I I LIST OF TABLES (CONT'D) TABLE PAGE 20 Varimax R o t a t e d F a c t o r L o a d i n g M a t r i x (RRAP) 1979 97 21 R e g r e s s i o n R e s u l t s of P r i n c i p a l Components (RRAP) 1979...99 22 Varimax R o t a t e d F a c t o r L o a d i n g M a t r i x (RRAP) 1980 101 23 R e g r e s s i o n R e s u l t s of P r i n c i p a l Components (RRAP) 1980..103 24 Varimax R o t a t e d F a c t o r L o a d i n g M a t r i x ( RRAPAMT) 1980...105 25 R e g r e s s i o n R e s u l t s of P r i n c i p a l Components (RRAPAMT).... 108 V I I I LIST OF FIGURES F i g u r e p a g e 1 A C o n c e p t u a l Model of House P r i c e D e t e r m i n a n t s 32 2 Map of the Study Area 54 IX ACKNOWLEDGEMENTS I would l i k e t o thank the committee members, Dr. Jonathan Mark, Dr. M i c h a e l G o l d b e r g , and Dr. Denton Marks, f o r t h e i r s e n s i t i v e d e m o n s t r a t i o n t o my needs and g r e a t c o o p e r a t i o n under s h o r t n o t i c e , i n h e l p i n g me t o complete t h i s t h e s i s p r o j e c t . I am p a r t i c u l a r l y g r a t e f u l t o Dr. Jonathan Mark, f o r h i s c o n t i n u o u s s u p p o r t , encouragement and sense of humour, w i t h o u t which, t h i s s t u d y would never have been completed. G r a t e f u l acknowledgements a re extended t o the s t a f f a t the Vancouver RRAP o f f i c e f o r t h e i r p a t i e n c e and c o o p e r a t i o n , i n making f i l e s and i n f o r m a t i o n a v a i l a b l e t o me. S i n c e r e a p p r e c i a t i o n i s a l s o extended t o the Urban Land Economics D i v i s i o n of the U n i v e r s i t y of B r i t i s h Columbia and the R e a l E s t a t e C o u n c i l of B r i t i s h Columbia f o r t h e i r f i n a n c i a l a s s i s t a n c e . L a s t of a l l "Baruch A t a h A d o n a i " . CHAPTER 1 PREFACE (1.1) Overview "The concept of ' o p t i m a l r e d i s t r i b u t i o n ' i m p l i e s t h a t i n d i v i d u a l s d e r i v e s a t i s f a c t i o n from the consumption p a t t e r n s of o t h e r i n d i v i d u a l s , as w e l l as t h e i r own. T h i s i d e a has been and c o n t i n u e s t o be an i m p o r t a n t j u s t i f i c a t i o n f o r government i n t e r v e n t i o n i n h o u s i n g markets i n a somewhat d i f f e r e n t c o n t e x t . I t has l o n g been argued t h a t improved h o u s i n g c o n d i t i o n s i n a neighborhood b e n e f i t s o t h e r r e s i d e n t s of the neighborhood, b e s i d e s b e n e f i t t i n g those whose h o u s i n g i s improved d i r e c t l y . S t a t e d the o t h e r way around s u b s t a n d a r d h o u s i n g i n f l i c t s c o s t s on o t h e r s b e s i d e s i t s oc c u p a n t s . These b e n e f i t s or c o s t s may be both monetary or non-monetary. H i g h e r p r o p e r t y v a l u e s f o r o t h e r p r o p e r t y i n a neighborhood when the su b s t a n d a r d h o u s i n g i s upgraded or r e p l a c e d ; l o w e r c r i m e , d e l i n q u e n c y , d i s e a s e when h o u s i n g i s improved... ...The e x i s t e n c e of e i t h e r monetary or non-monetary b e n e f i t s would be s u f f i c i e n t j u s t i f i c a t i o n f o r government i n t e r v e n t i o n . Whether or not they e x i s t i s a q u e s t i o n of f a c t r a t h e r than t h e o r y , which must be answered by d e t a i l e d s t u d i e s of h o u s i n g markets (John C. Weicher 1976 p. 184)." 2 (1.2) I n t r o d u c t i o n An i m p o r t a n t c o n s i d e r a t i o n f o r government i n t e r v e n t i o n i n t o h o u s i n g markets i s t h a t t h e r e w i l l be i n d i r e c t e x t e r n a l b e n e f i t s f o r n e i g h b o r h o o d s . V a r i o u s a n a l y s t s have d i s c u s s e d the r a t i o n a l e f o r government i n t e r v e n t i o n and have h y p o t h e s i z e d t h a t government s u b s i d i z e d programs s h o u l d i n c r e a s e p r o p e r t y v a l u e s . U n f o r t u n a t e l y , the e m p i r i c a l r e s e a r c h i s l i m i t e d , c o n f l i c t i n g and i n c o n c l u s i v e . I t i s the o b j e c t i v e of t h i s r e s e a r c h t o c l a r i f y t h i s m a t t e r . In t h i s t h e s i s , the K e n s i n g t o n neighborhood i n Vancouver, B r i t i s h Columbia i s a n a l y z e d v i a m u l t i v a r i a t e r e g r e s s i o n a n a l y s i s t o de t e r m i n e i f one government program, the Canadian R e s i d e n t i a l R e h a b i l i t a t i o n A s s i s t a n c e Program (RRAP), c r e a t e s p o s i t i v e e f f e c t s on s u r r o u n d i n g p r o p e r t y v a l u e s . In r e c e n t y e a r s government h o u s i n g p o l i c y has s h i f t e d emphasis from urban renewal t o r e h a b i l i t a t i o n . T h i s s h i f t has been prompted by the d i s a p p o i n t i n g e f f e c t s of urban renewal and the e x p e c t a t i o n t h a t r e h a b i l i t a t i o n w i l l improve homeowner c o n f i d e n c e , a prime c o n s i d e r a t i o n i n i n d u c i n g g e n e r a l n eighborhood improvement. In t h i s t h e s i s , the p o s s i b l e e x i s t e n c e of e x t e r n a l i t i e s a r e examined t o u n d e r s t a n d how RRAP a f f e c t s e x p e c t a t i o n s and neighborhood change. I f p o s i t i v e e x t e r n a l i t i e s a r e c r e a t e d which i n f l u e n c e homeowners' e x p e c t a t i o n s about t h e i r n e i g h b o r h o o d , then government r e h a b i l i t a t i o n p o l i c i e s may improve c o n f i d e n c e and l e a d t o p o s i t i v e n e i g h o r h o o d change. Varady (1982) d e s c r i b e d the e x p e c t e d b e n e f i t s from p o s i t i v e s p i l l o v e r e f f e t s : 3 "Government h o u s i n g programs c o u l d promote p o s i t i v e s p i l l o v e r e f f e c t s on p r o p e r t y v a l u e s by r e d u c i n g the degree of u n c e r a i n t y among c u r r e n t and p r o s p e c t i v e hoveowners. S p e c i f i c a l l y , v i s i b l e improvements r e s u l t i n g from h o u s i n g programs, combined w i t h s t r a t e g i e s t o upgrade community s e r v i c e s and f a c i l i t i e s , c o u l d make nearby r e s i d e n t s more o p t i m i s t i c about the neighborhood's f u t u r e and t h e r e f o r e make them more l i k e l y t o i n v e s t (p. 433) ." To t e s t t h e s e k i n d s of e x p e c t a t i o n s , t h i s t h e s i s seeks t o answer the q u e s t i o n : "Has the i m p l e m e n t a t i o n of RRAP i n the K e n s i n g t o n neighborhood of Vancouver c r e a t e d p o s i t i v e e x t e r n a l i t y e f f e c t s on s u r r o u n d i n g p r o p e r t y v a l u e s ? " In s e t t i n g p o l i c y g u i d e l i n e s f o r government programs i t i s im p o r t a n t t o d i s t i n g u i s h whether government s u b s i d i e s a f f e c t o n l y the p a r t i c u l a r d w e l l i n g t h a t r e c e i v e s f u n d i n g or whether t h r o u g h example and i n c r e a s e d c o n f i d e n c e , s u b s i d i e s l e a d t o p r o p e r t y improvements t h r o u g h the neighborhood. (1.3) Government Housing P o l i c i e s In o r d e r t o put the a l t e r n a t i v e of r e h a b i l i t a t i o n i n t o p e r s p e c t i v e , a c l o s e l o o k a t i t s p r e d e c e s s o r , urban r e n e w a l , i s i n o r d e r . Urban renewal was i n t e n d e d t o remove d i l a p i d a t e d h o u s i n g t h a t c r e a t e d n e g a t i v e e x t e r n a l i t i e s and r e p l a c e i t w i t h new s t r u c t u r e s t h a t c r e a t e d p o s i t i v e ones. As Nourse (1976) o u t l i n e d the problem: " i f below s t a n d a r d h o u s i n g c r e a t e s s o c i a l 4 c o s t s t o s u r r o u n d i n g p r o p e r i e s ... then i t s h o u l d pay the government t o improve h o u s i n g t h a t would reduce the s o c i a l c o s t by as much as i t would c o s t t o improve the q u a l i t y of h o u s i n g (p. 243)." Economists and p l a n n e r s d e t e r m i n e d t h a t h o u s i n g markets were i m p e r f e c t due t o the e x i s t e n c e of e x t e r n a l i t i e s . The development and p e r s i s t e n c e of slums were b e l i e v e d t o be due t o t h e s e market i m p e r f e c t i o n s and the i m p l e m e n t a t i o n of urban renewal programs was proposed as a s o l u t i o n . V a r i o u s a n a l y s t s have examined the e x i s t e n c e and c r e a t i o n of slums. D a v i s and Whinston (1966) put f o r t h two t h e o r i e s . They s u g g e s t e d t h a t t h e e x i s t e n c e of slums was due t o p r o p e r t y owners who had an e x a g g e r a t e d n o t i o n of the e x t e n t and t i m i n g of m u n i c i p a l e x p a n s i o n . In a n t i c i p a t i o n of the a r r i v a l of more i n t e n s i v e uses which might b r i n g c a p i t a l g a i n s , owners were r e l u c t a n t t o i n v e s t i n improvements. Thus, by p e r m i t t i n g p r o p e r t y d e t e r i o r a t i o n , slums d e v e l o p e d . A second t h e o r y s u g g ested t h a t s i n c e the v a l u e of any one p r o p e r t y depends i n p a r t upon the neighborhood i n which i t i s l o c a t e d , e x t e r n a l i t i e s a r e p r e s e n t i n the u t i l i t y f u n c t i o n . That i s , u t i l i t y d e r i v e d from a p r o p e r t y depends not o n l y upon the d e s i g n , s t a t e of r e p a i r s , and ambiance of t h a t p r o p e r t y , but a l s o upon the c h a r a c t e r i s t i c s of nearby p r o p e r t i e s . As a r e s u l t , each owner i n the neighborhood w i l l o b t a i n the h i g h e s t r a t e of r e t u r n i f h i s p r o p e r t y i s u n d e r m a i n t a i n e d , w h i l e a l l or most o t h e r p r o p e r t i e s are w e l l m a i n t a i n e d . A l t e r n a t e l y , owners r e c e i v e the s m a l l e s t r e t u r n i f t h e i r p r o p e r t i e s are w e l l m a i n t a i n e d w h i l e a l l or most o t h e r s a r e p o o r l y m a i n t a i n e d . T h i s 5 s c e n a r i o , known as the " P r i s o n e r ' s Dilemma" c r e a t e s an i n c e n t i v e f o r owners t o l e t t h e i r p r o p e r t i e s d e t e r i o r a t e . Rothenberg (1970) suggested t h a t the e x i s t e n c e of e x t e r n a l i t i e s r e s u l t e d i n a d i v e r g e n c e between p r i v a t e b e n e f i t s and c o s t s , and the c o r r e s p o n d i n g s o c i a l magnitudes. The development of slums was b e l i e v e d t o be a s u b o p t i m a l s i t u a t i o n . He s t a t e d t h a t p u b l i c urban renewal was n e c e s s a r y , s i n c e w i t h o u t c o o r d i n a t i o n , p r o p e r t y owners w i l l f a l l i n t o the " P r i s o n e r ' s Dilemma". He f e l t t h a t i f owners c o u l d c o o r d i n a t e t h e i r d e c i s i o n s they would p r o b a b l y p r e f e r t o c r e a t e the o p t i m a l o v e r a l l s i t u a t i o n whereby a l l p r o p e r y owners m a i n t a i n e d t h e i r p r o p e r t i e s a t a s t a n d a r d l e v e l . However, c o o r d i n a t i o n i s o f t e n c o s t l y and d i f f i c u l t t o a c h i e v e . I n f o r m a t i o n must be c o l l e c t e d , a p r e f e r r e d a c t i o n must be f o r m u l a t e d , i n d i v i d u a l a c t i o n must be a s s i g n e d and c o n f o r m i t y must be e n f o r c e d . F u r t h e r m o r e , a t each stage of t h i s p r o c e s s , the group i s t h r e a t e n e d by i n d i v i d u a l s who attempt t o c o e r c e the group i n t o a c t i o n , w h i l e they themselves renege ( t h e " F r e e R i d e r P r o b l e m " ) . S l a y t o n (1966) a s c r i b e d the e x i s t e n c e of slums t o the i n a b i l i t y of p r i v a t e e n t e r p r i s e t o r e b u i l d d e t e r i o r a t i n g p a r t s of the c i t y . He suggested t h a t p r i v a t e e n t e r p r i s e f a c e d two b a s i c o b s t a c l e s : the assembly of l a n d p a r c e l s under d i v e r s e o wnership and the tremendously h i g h c o s t of o b t a i n i n g l a n d f o r redevelopment. In h i s v i e w , p r i v a t e e n t e r p r i s e needed a l a n d assembly l a r g e enough t o s u p p o r t e f f i c i e n t modern development t h a t a t the same time c o u l d w i t h s t a n d the n e g a t i v e e x t e r n a l i t y e f f e c t s of a d j a c e n t b l i g h t . S i n c e the a c q u i s i t i o n c o s t s t o a 6 p r i v a t e d e v e l o p e r o f t e n r e f l e c t e d i n f l a t e d s p e c u l a t i v e v a l u e s , t h e s e c o s t s c o u l d p r o h i b i t p r i v a t e redevelopment. As a r e s u l t , the i m p e r f e c t i o n of the p r i v a t e market c a l l e d f o r p u b l i c urban r e n e w a l . But, c o u l d government do the j o b b e t t e r ? M a r t i n Anderson (1965) i n h i s book The F e d e r a l B u l l d o z e r c r i t i c i z e d the urban renewal program and c o n t r a s t e d i t w i t h the r e s u l t s of the f r e e m a r k e t p l a c e . He found t h a t the program was v e r y e x p e n s i v e , more homes were d e s t r o y e d than were b u i l t ; t hose homes d e s t r o y e d were p r e d o m i n a n t l y low r e n t homes, whereas those t h a t were b u i l t were p r e d o m i n a n t l y h i g h r e n t homes; h o u s i n g c o n d i t i o n s were made worse f o r those whose h o u s i n g c o n d i t i o n s were the l e a s t good; and h o u s i n g c o n d i t i o n s were improved f o r those whose h o u s i n g c o n d i t i o n s were b e s t . The scope and depth of the urban renewal program made i t "one of the most w i d e l y d i s c u s s e d and perhaps the most c o n t r o v e r s i a l " of f e d e r a l h o u s i n g programs, a c c o r d i n g t o W i l s o n (1966). In Canada, H e l l y e r (1969) of the J o i n t Task Force on Housing and Urban Development summarized the e f f e c t s "based on the grounds of humanity, e f f i c i e n c y and good p l a i n sense." The t a s k f o r c e paper (The H e l l y e r R e p o r t ) c o n c l u d e d t h a t : "...urban renewal tended t o d e m o l i s h b u i l d i n g s t h a t had not o u t l i v e d t h e i r p h y s i c a l u s e f u l n e s s , d i s r u p t the l i v i n g p a t t e r n s of t h o s e c i t i z e n s i n v o l v e d i n the p r o c e s s , and tended t o reduce the h o u s i n g s t o c k (by r e p l a c i n g w i t h fewer u n i t s than were removed) a t a time when the c o u n t r y was s u f f e r i n g from a h o u s i n g s h o r t a g e (p. 6 4 ) . " 7 The Canadian r e p o r t h i g h l i g h t e d the f a c t t h a t groups a f f e c t e d by urban renewal were not r e c e i v i n g a l t e r n a t e h o u s i n g b e f o r e d e m o l i t i o n took p l a c e , t h a t communities and s o c i a l l i n k s were b e i n g s h a t t e r e d and homeowners (many of whom were e l d e r l y p e o p l e whose l i f e s a v i n g s were i n t h e i r homes) were b e i n g e x p r o p r i a t e d w i t h i n s u f f i c i e n t compensation t o purchase o t h e r houses. The H e l l y e r Report caused an end t o urban renewal i n Canada and s t a t e d t h a t : " i t i s a case of mixed p r i o r i t i e s t o be d e m o l i s h i n g even o l d e r h o u s i n g u n i t s a t c o n s i d e r a b l e p u b l i c expense a t a time when some urban Canadians a r e w i t h o u t h o u s i n g of any k i n d , new or o l d . The a v a i l a b l e p u b l i c funds s h o u l d be d i r e c t e d t o c r e a t i n g a s u f f i c i e n t s t o c k f i r s t and then - and o n l y then - t o d e s t r o y any number of e x i s t i n g s t o c k ( H e l l y e r 1969, p. 6 5 ) . " The t a s k f o r c e r e p o r t and s i m i l a r s t u d i e s i n the U.S. c o n f i r m e d the problems a s s o c i a t e d w i t h urban r e n e w a l . The s t u d i e s h i g h l i g h t e d the h i g h c o s t s and meager b e n e f i t s . The papers ended the renewal p o l i c i e s and r e d i r e c t e d them toward r e h a b i l i t a t i o n . (1.4) The R o l e Of R e h a b i l i t a t i o n The c u r r e n t study a d d r e s s e s i t s e l f s p e c i f i c a l l y t o r e h a b i l i t a t i o n . One i m p o r t a n t argument f o r the use of r e h a b i l i t a t i o n p o l i c i e s i s t h a t the e f f e c t s on the h o u s i n g markets a r e more p o s i t i v e than the e f f e c t s of urban renewal ( H e l l y e r , 1969). T h i s may be a t t r i b u t e d t o the o b s e r v a t i o n t h a t 8 redevelopment, or urban renewal d e s t r o y s s t r u c t u r e s and o f t e n c r e a t e s changes i n the r e s i d e n t i a l c o m p o s i t i o n of neighborhoods and the p h y s i c a l environment (Rose, 1974). In a d d i t i o n , urban renewal has been shown t o have n e g a t i v e e f f e c t s on e x p e c t a t i o n s and i n h i b i t p r i v a t e i nvestment e x p e n d i t u r e s (Anderson, 1965). In c o n t r a s t , r e h a b i l i t a t i o n a c t s t o p r e s e r v e neighborhoods and s o c i o - c u l t u r a l p a t t e r n s w h i l e a v o i d i n g changes i n l i v i n g p a t t e r n s f o r r e s i d e n t s (Dennis and F i s h , 1972). Neighbourhood improvement i s encouraged by the p r e s e r v a t i o n of h o u s i n g c a p i t a l and the s t r e n g t h e n i n g of neighborhood and c i t i z e n p a r t i c i p a t i o n (Rose, 1974). S i n c e r e h a b i l i t a t i o n does not d e s t r o y h o u s i n g , d i s r u p t i v e and unnecessary d i s l o c a t i o n does not o c c u r . In e f f e c t , arguments i n support of r e h a b i l i t a t i o n c e n t e r e d on i m p o r t a n t , i n d i r e c t (or s o c i e t a l ) b e n e f i t s as w e l l as d i r e c t (or i n d i v i d u a l ) b e n e f i t s . In d e f e n d i n g t h e s e programs b e f o r e the U.S. Senate Committee on B a n k i n g , P a t r i c i a H a r r i s , then S e c r e t a r y of the U.S. Department of Housing and Urban Development, argued: 9 . . . " t h e r e a r e e x t e r n a l b e n e f i t s t o n e i g h b o r s and neighborhoods r e s u l t i n g from an i n d i v i d u a l p a r t i c i p a t i o n i n HUD's programs t h a t w i l l not be r e f l e c t e d i n t h a t i n d i v i d u a l ' s assessment of the v a l u e of the program t o him. We a t HUD b e l i e v e t h a t the a ggregate b e n e f i t s a c c r u i n g t o both s o c i e t y and the i n d i v i d u a l - q u a l i t y h o u s i n g , improved neighborhood c o n d i t i o n s , a h e a l t h i e r environment f o r f a m i l y u p b r i n g i n g - f a r outweigh the d o l l a r c o s t s of HUD's h o u s i n g s u b s i d y programs. I f f e d e r a l h o u s i n g s u b s i d i e s were c u t back many of thes e e x t e r n a l b e n e f i t s would be l o s t a l o n g w i t h the h o u s i n g ( c i t e d i n Varady 1982 , p. 432) . " These i n d i r e c t b e n e f i t s ( e x t e r n a l i t i e s ) a r e an im p o r t a n t c o n s i d e r a t i o n f o r the i m p l e m e n t a t i o n of government s u b s i d i z e d programs. Without them, the government must r a t i o n a l i z e i t s e x p e n d i t u r e s i n terms of the b e n e f i t s r e c e i v e d by the i n d i v i d u a l rec i p i e n t . John Weicher (1972) had d i s c u s s e d t h e s e i n d i r e c t b e n e f i t s as w e l l , but warned about the l a c k of e m p i r i c a l r e s e a r c h : "The f a c t t h a t each owner's improvement of h i s p r o p e r t y i n c r e a s e s the v a l u e of h i s n e i g h b o u r ' s can be used as an argument i n f a v o r of s u b s i d i e s t o r e h a b i l i t a t i o n i n the form of low i n t e r e s t r a t e l o a n s or g r a n t s . The community would' t h e r e b y s u b s i d i z e the i n d i v i d u a l p r o p e r t y owner t o the e x t e n t t h a t the owner's r e h a b i l i t a t i o n i n c r e a s e s the v a l u e of the o t h e r p e o p l e ' s p r o p e r t y . In a 10 r e h a b i l i t a t i o n p r o j e c t each owner b e n e f i t s from h i s n e i g h b o r ' s r e h a b i l i t a t i o n as w e l l as h i s own. Whether or not these c r o s s e f f e c t s b a l a n c e each o t h e r i s an e m p i r i c a l q u e s t i o n which has r e c e i v e d l i t t l e i n v e s t i g a t i o n (p. 5 8 ) . " As the government debate about r e h a b i l i t a t i o n p o l i c i e s c o n t i n u e d , i t was argued t h a t c o n s e r v a t i o n programs were l e s s c o s t l y . The H e l l y e r Report s t a t e d : " S u c c e s s f u l r e h a b i l i t a t i o n can produce a number of w o r t h w h i l e b e n e f i t s . For one t h i n g , the c o s t i n most c a s e s i s f a r l e s s than d e s t r u c t i o n and replacement (p. 6 5 ) . " But, i n f a c t , a c t u a l c o s t s have not s u p p o r t e d t h i s argument. Bagby (1973), i n a c o s t - b e n e f i t a n a l y s i s of r e h a b i l i t a t i o n , c o n c l u d e d t h a t r e h a b i l i t a t i o n d i d not have a l a r g e advantage over new c o n s t r u c t i o n . H i s study d i s c o v e r e d t h a t new c o n s t r u c t i o n was o n l y 22% t o 24% more e x p e n s i v e than r e h a b i l i t a t i o n . 1 S i m i l a r l y , the U.S. Department of Housing and Urban Development (1975) c o n c l u d e d t h a t r e h a b i l i t a t i o n was o n l y 10% t o 15% cheaper than new c o n s t r u c t i o n . These f i n d i n g s i n d i c a t e t h a t i n terms of money spent on c o n s t r u c t i o n , r e h a b i l i t a t i o n ' s t r u e c o s t - e f f e c t i v e n e s s i s i n doubt. Beyond c o s t , t h e r e i s the q u e s t i o n of l a n d use. R e h a b i l i t a t i o n i s l i m i t e d i n t h a t i t cannot enhance the e f f i c i e n c y of l a n d use where new uses would be p r o f i t a b l e . In 11 some c a s e s , the maintenance of o b s o l e t e space, d e n s i t y r a t i o s and f u n c t i o n a l l y o b s o l e t e s t r u c t u r e s i s not n e c e s s a r i l y o p t i m a l . In such s i t u a t i o n s , redevelopment i s the best a l t e r n a t i v e (Chung, 1973). To summarize t h i s r e s e a r c h , i t appears t h a t the c o s t e f f e c t i v e n e s s of r e h a b i l i t a t i o n i s q u e s t i o n a b l e i n the l o n g r u n . A d d i t i o n a l l y , r e h a b i l i t a t i o n i s unable t o improve the e f f i c i e n c y of l a n d use where new uses would be more p r o d u c t i v e . F u r t h e r m o r e , due t o the l a c k of e m p i r i c a l r e s e a r c h , the e x i s t e n c e of i n d i r e c t e x t e r n a l b e n e f i t s i s unknown. These lacu n a e i n our knowledge s e t the s t a g e f o r the a n a l y s i s performed i n t h i s t h e s i s . The d e t e r m i n a t i o n of the e x t e r n a l e f f e c t on p r i c e t h a t a government s u b s i d i z e d r e h a b i l i t a t i o n program e x e r t s on s u r r o u n d i n g p r o p e r t y may enable us t o p i n p o i n t more a c c u r a t e l y the r o l e of government h o u s i n g p o l i c y i n i m p r o v i n g e x p e c t a t i o n s and e n hancing neighborhood change. (1.5) Framework of the Study In t h i s c h a p t e r we have p r e s e n t e d an o v e r v i e w of the reasons f o r e m p i r i c a l r e s e a r c h . We have d i s c u s s e d the emergence of government i n t e r v e n t i o n i n response t o the problem of d e t e r i o r a t i n g h o u s i n g which had not been met i n the p r i v a t e s e c t o r . We have i n t r o d u c e d the response of urban renewal and the d i s a p p o i n t i n g e f f e c t s , and we have o u t l i n e d the arguments f o r and a g a i n s t r e h a b i l i t a t i o n . N e a r l y e v e r y spokesman on the s u b j e c t of r e h a b i l i t a t i o n has d e c r i e d the l a c k of s o l i d , e m p i r i c a l r e s e a r c h t o t e s t i t s e f f e c t s . In t h i s t h e s i s , a government r e h a b i l i t a t i o n program (RRAP) i s a n a l y z e d t o a s c e r t a i n whether e x t e r n a l i t i e s are c r e a t e d . The 1 2 e f f e c t of p o l i c i e s on neighborhood change and expectations w i l l be measured using sample data from the Vancouver neighborhood of Kensington. Chapter 2 w i l l review the l i t e r a t u r e to put government p o l i c i e s in perspective. It w i l l consider e x t e r n a l i t i e s in re l a t i o n to neighborhood change, property values, and the methodologies used to test for them. Chapter 3 w i l l review RRAP. It w i l l outline i t s operational guidelines, previous evaluations, and i t s attributes and li m i t a t i o n s in general. This chapter w i l l also review RRAP's companion program The Neighborhood Improvement Program (NIP). Chapter 4 describes the methodology and data that w i l l be used in the analysis of the Kensington neighborhood. The sampling procedures, choices, and sources of the data w i l l be detailed. The test neighborhood w i l l be described and the l i m i t a t i o n s of the data and methodology w i l l be presented. Chapter 5 presents the results of this research, while Chapter 6 discusses the implications of the findings for government policy in a general context of other c i t i e s and regions. A bri e f summary of the the study and areas for future research conclude the thesis. 1 3 F o o t n o t e s (1) Some r e a d e r s may f i n d a 22% t o 24% s a v i n g s q u i t e s i g n i f i c a n t . The re v i e w suggests t h a t t h i s i s not so. The d e f i n i t i o n of a s i g n i f i c a n t s a v i n g s i s s u b j e c t i v e . T h i s a u t h o r c o n c u r s w i t h Bagby and f i n d s t h a t r e h a b i l i t a t i o n s h o u l d have a l a r g e r s a v i n g s than 24% t o make i t s i g n i f i c a n t . 1 4 CHAPTER 2 A REVIEW OF THE LITERATURE (2.1) P r e v i o u s E m p i r i c a l S t u d i e s Of The E x t e r n a l B e n e f i t s Of  Government S u b s i d i z e d R e h a b i l i t a t i o n Programs One of the f i r s t a n a l y s e s of the e x t e r n a l e f f e c t s on p r o p e r t y v a l u e s was performed by G r e b l e r (1953). In h i s book Housing  Market B e h a v i o r i n a D e c l i n i n g A r e a , he compared changes i n a s s e s s e d v a l u e s of b l o c k s s u r r o u n d i n g p u b l i c h o u s i n g p r o j e c t s and s i m i l a r c o n t r o l neighborhoods. H i s f i n d i n g s i n d i c a t e d t h a t b l o c k s a b u t t i n g the h o u s i n g p r o j e c t s had g r e a t e r i n c r e a s e s i n v a l u e than the t o t a l f o r the c o n t r o l neighborhood. T h i s f i n d i n g s u p p o r t s the r a t i o n a l e f o r government i n t e r v e n t i o n . However, a major c r i t i c i s m of t h i s r e s e a r c h , i s t h a t he compared t o t a l a s s e s s e d v a l u e s . As t o t a l a s s e s s e d v a l u e s may change due t o changes i n p r o p o r t i o n s of t a x exempt p r o p e r t i e s or d e m o l i t i o n s i n e i t h e r neighborhood, t h i s proxy i s i n a c c u r a t e . A d d i t i o n a l l y the use of a s s e s s e d v a l u e s as the d e t e r m i n a n t of v a l u e has m e t h o d o l o g i c a l l i m i t a t i o n s . For example, i f the t a x a s s e s s o r s b e l i e v e d t h a t the h o u s i n g p r o j e c t s added v a l u e ( w h i l e i n a c t u a l f a c t they d i d not) the a n a l y s i s w i l l be b i a s e d due t o the s u b j e c t i v e o p i n i o n s of the t a x a s s e s s o r s . T h i s s t u d y h i g h l i g h t s the importance of u s i n g a c t u a l s a l e s d a t a . A second study was performed by Nourse (1963). H i s i n v e s t i g a t i o n a t t e m p t e d t o examine the t r a d i t i o n a l argument f o r p u b l i c investment i n ho u s i n g as suggested by Senator A.S. Mike Monroney: 15 " One of the p r i n c i p a l arguments w i t h which I go a l o n g i s t h a t the e s t a b l i s h m e n t of a modern h o u s i n g p r o j e c t i n a c i t y r a i s e s the a s s e s s e d v a l u a t i o n f o r b l o c k s around i t and p u t s back onto the m u n i c i p a l tax r o l l s a g r e a t d e a l more money than i s taken o f f by the l a n d t h a t i s o c c u p i e d by these p u b l i c h o u s i n g p r o j e c t s ( c i t e d i n Nourse 1963, p. 433)." Nourse a t t e m p t e d t o d e t e r m i n e i f t h e r e was an i n c r e a s e i n p r o p e r t y v a l u e s due t o p u b l i c h o u s i n g p r o j e c t s . H i s r a t i o n a l e f o r s t u d y i n g t h i s e f f e c t was s t a t e d a s : "Low income f a m i l i e s l i v i n g i n p u b l i c h o u s i n g p r o j e c t s r e c e i v e a s u b s t a n t i a l h o u s i n g s u b s i d y , a v e r a g i n g about $115 per month p l u s u t i l i t i e s . C l e a r l y the p u b l i c h o u s i n g program tends t o i n c r e a s e t h e i r w e l l - b e i n g . N e v e r t h e l e s s , i f the w e l f a r e of t h e s e f a m i l i e s were the o n l y c o n c e r n , they c o u l d be made b e t t e r o f f by an e q u i v a l e n t income s u b s i d y t h a t they c o u l d j u s t spend as they w i s h . T h e r e f o r e the j u s t i f i c a t i o n f o r p u b l i c h o u s i n g programs must be sought i n i t s e x t e r n a l e f f e c t s on the s u r r o u n d i n g community (p. 434)." Nourse's study compared the s a l e s p r i c e of p r o p e r t i e s i n c o n t r o l neighborhoods v e r s u s p r o p e r t i e s i n a r e a s w i t h p u b l i c h o u s i n g p r o j e c t s . H i s r e s e a r c h p r o v i d e d no e v i d e n c e t o s u p p o r t the view t h a t p u b l i c h o u s i n g p r o j e c t s i n c r e a s e d the v a l u e of s u r r o u n d i n g p r o p e r t i e s . There a r e two major c r i t i c i s m s of h i s s t u d y . F i r s t , h i s a n a l y s i s used t e s t and c o n t r o l neighborhoods. T h e o r e t i c a l l y , c o n t r o l neighborhoods s h o u l d be i d e n t i c a l t o the 16 t e s t neighborhood except f o r the e x i s t e n c e of a p u b l i c h o u s i n g p r o j e c t . P r a c t i c a l l y t h i s i s i m p o s s i b l e , because no two neighborhoods can be i d e n t i c a l . T h i s methodology p r o v i d e s one l i m i t a t i o n . The second l i m i t a t i o n i s t h a t h i s d a t a d i d not a d j u s t f o r d i f f e r e n c e s i n p a r c e l s i z e or l a n d use. D i f f e r e n c e s i n t h e s e f a c t o r s a l o n e may be s u f f i c i e n t f o r v a r y i n g p r i c e changes i n the d i f f e r e n t n e ighborhoods. On t h i s s c o r e h i s f i n d i n g s may be i n a c c u r a t e . F e r r e r a (1969) compared the r e l a t i v e change of p r o p e r t y v a l u e s i n two r i n g s around urban renewal p r o j e c t s i n C h i c a g o . H i s f i n d i n g s i n d i c a t e d t h a t p r o x i m i t y t o an urban renewal p r o j e c t d i d not l e a d t o h i g h e r p r o p e r t y v a l u e s . The l i m i t a t i o n t o t h i s study was i n the d e s i g n a t i o n of the c o n t r o l n e ighborhood. In t h i s r e s e a r c h the c o n t r o l n eighborhood was c o n s i d e r e d the e n t i r e n eighborhood i n which the urban renewal p r o j e c t was l o c a t e d . W i th t h i s methodology i f the impact of the p r o j e c t c o v e r e d the e n t i r e n eighborhood, no r e s u l t would have been d e t e c t e d . The methodology would o n l y be a p p r o p r i a t e i f the e f f e c t had a d e c l i n i n g impact w i t h d i s t a n c e from the urban renewal p r o j e c t . S c h a f e r (1972) compared the t r e n d s i n v a l u e of houses around a S e c t i o n 236 "Below Market I n t e r e s t Rate P r o j e c t " w i t h t r e n d s i n comparable t e s t neighborhoods i n the San Fernando V a l l e y i n Los A n g e l e s . H i s t e s t found no s i g n i f i c a n t d i f f e r e n c e between the two neighborhoods. Once a g a i n , the d e s i g n a t i o n of a c o n t r o l n eighborhood i s a major m e t h o d o l o g i c a l l i m i t a t i o n . DeSalvo (1974) sampled 50 New York C i t y neighborhoods i n which m i d d l e income h o u s i n g p r o j e c t s were b u i l t . 1 He found t h a t p r o p e r t y v a l u e s d i d r i s e more r a p i d l y i n neighborhoods 1 7 c o n t a i n i n g M i t c h e l l Lama p r o j e c t s than i n c o n t r o l n e i g h b o r h o o d s , ( M i t c h e l l Lama i s a New York S t a t e Program which a l l o w s c o n s t r u c t i o n or r e h a b i l i t a t i o n of c o o p e r a t i v e h o u s i n g or l i m i t e d d i v i d e n d r e n t a l h o u s i n g by p r i v a t e e n t e r p r i s e w i t h p u b l i c a s s i s t a n c e and s u p e r v i s i o n ) . There a r e t h r e e s h o r t c o m i n g s t o t h i s a n a l y s i s . The f i r s t l i m i t a t i o n i s t h a t the study compared t e s t and c o n t r o l neighborhoods. As p r e v i o u s l y d i s c u s s e d t h e r e are t h e o r e t i c a l l i m i t a t i o n s t o t h i s methodology. The second l i m i t a t i o n i s t h a t the a n a l y s i s used a s s e s s e d , r a t h e r than a c t u a l s a l e s d a t a . T h i s d a t a i n c o r p o r a t e s s u b j e c t i v e l y d e t e r m i n e d f i g u r e s which may be b i a s e d . F i n a l l y , the sample s i z e a n a l y z e d was q u i t e s m a l l . 2 In a study completed by the U n i t e d S t a t e s Department of Housing and Urban Development (HUD), Annual Housing Survey d a t a from the Chicago SMSA f o r 1976 were used t o t e s t the h y p o t h e s i s t h a t r e s i d e n t s of a r e a s c l o s e t o p u b l i c h o u s i n g s i t e s , have h i g h e r l e v e l s of h o u s i n g s a t i s f a c t i o n and pay h i g h e r r e n t s , than r e s i d e n t s of o t h e r w i s e comparable a r e a s w i t h o u t p u b l i c h o u s i n g . M u l t i p l e r e g r e s s i o n a n a l y s i s was used t o d e t e r m i n e the importance of l o c a t i o n compared t o o t h e r h o u s i n g and neighborhood c h a r a c t e r i s t i c s , i n e x p l a i n i n g v a r i a t i o n i n h o u s i n g and neighborhood s a t i s f a c t i o n and g r o s s r e n t . Owners were e x c l u d e d from the a n a l y s i s because an i n s u f f i c i e n t number l i v e d i n c l u s t e r s c o n t a i n i n g p u b l i c h o u s i n g . The r e s u l t s p r o v i d e d no support f o r the h y p o t h e s i s . There was o n l y a s m a l l p o s i t i v e r e g r e s s i o n c o e f f i c i e n t between the presence of p u b l i c h o u s i n g and the neighborhood r a t i n g s and a s m a l l n e g a t i v e r e g r e s s i o n c o e f f i c i e n t between the p r e s e n c e of 18 p u b l i c h o u s i n g and g r o s s r e n t s . There a r e two l i m i t a t i o n s t o t h i s s t u d y . The f i r s t l i m i t a t i o n , i s t h a t owners were e x c l u d e d from the a n a l y s i s . I t may be an e r r o r t o g e n e r a l i z e from r e n t e r s t o homeowners, s i n c e owners p r o b a b l y have a g r e a t e r i n t e r e s t i n the a r e a , because of the r e a l i nvestment they have as p r o p e r t y owners. U s u a l l y , p r o p e r t y owners a r e more concerned w i t h the type of development t a k i n g p l a c e i n the ar e a s where they l i v e or own p r o p e r t y . The second l i m i t a t i o n of the a n a l y s i s i s t h a t a g r o s s measure of d i s t a n c e t o p u b l i c h o u s i n g s i t e s was used. Some who l i v e i n p u b l i c h o u s i n g c l u s t e r s may l i v e a b l o c k away from the p r o j e c t s ; o t h e r s may l i v e one or more m i l e s away. T h i s i s a s e r i o u s l i m i t a t i o n as the impact of the p r o j e c t on p r o p e r t y v a l u e s p r o b a b l y i s not l i k e l y t o ext e n d beyond a few b l o c k s . Up t o t h i s p o i n t we have not examined how r e h a b i l i t a t i o n programs a f f e c t p r o p e r t y v a l u e s and r e - i n v e s t m e n t . Pedone, Remch, and Case (1980) examined the Urban Homesteading D e m o n s t r a t i o n Program. T h i s i s a program whereby p r o p e r t i e s which a r e f o r e c l o s e d by HUD, a r e t r a n s f e r r e d t o l o c a l governments, who i n t u r n s e l e c t p r o s p e c t i v e new t e n a n t s . The l o c a l governments then s e l l t he p r o p e r t i e s t o f a m i l i e s f o r one d o l l a r on the c o n d i t i o n t h a t they make the r e p a i r s n e c e s s a r y t o meet l o c a l codes w i t h i n e i g h t e e n months and remain r e s i d e n t s f o r at l e a s t t h r e e y e a r s . L o c a l governments, a r e r e q u i r e d t o p r o v i d e a c o o r d i n a t e d approach t o neighborhood renewal i n the form of upgraded community s e r v i c e f a c i l i t i e s . U n i t e d S t a t e s f e d e r a l low i n t e r e s t r e h a b i l i t a t i o n l o a n s a r e a v a i l a b l e t o homesteaders t h r o u g h the s e c t i o n 312(a) program. 19 T h i s s t u d y ' s d a t a i s taken from t h r e e waves of r e s i d e n t s u r v e y s (a sample s i z e of a p p r o x i m a t e l y 1700) from 45 neighborhoods i n 23 c i t i e s . P r o p e r t y v a l u e i n f o r m a t i o n i s based on a c t u a l t r a n s a c t i o n s from f i v e homesteading c i t i e s . The r e s u l t s p r o v i d e s u p p o r t f o r a p o s i t i v e s p i l l o v e r h y p o t h e s i s . The a n a l y s i s s u g g e s t s t h a t t h e r e was a " r i p p l e e f f e c t " from homesteading s i t e s w i t h r e s p e c t t o investment and p r o p e r t y v a l u e s . In 1977 the h i g h e s t l e v e l of investment was i n zone 1 ( t h e r i n g c l o s e s t t o the homesteading s i t e ) . By 1979, the the h i g h e s t l e v e l of i n v e s t i n g was i n zone 3, f o u r or more b l o c k s away from the homesteading s i t e . F urthermore the most r a p i d r i s e i n p r o p e r t y v a l u e s o c c u r r e d i n zone 1. The r e g r e s s i o n r e s u l t s suggested t h a t the l i k e l i h o o d of i n v e s t i n g i n c r e a s e s w i t h p r o x i m i t y t o the homesteading s i t e . Varady (1982) su g g e s t s t h a t t h i s a n a l y s i s p r o v i d e s "one of the most s o p h i s t i c a t e d t e s t s t h u s f a r of the s p i l l o v e r h y p o t h i s i s " (p.435); however, "the d a t a d i d not make i t p o s s i b l e t o d e t e r m i n e the cause of p o s i t i v e s p i l l o v e r e f f e c t s . " (p. 435) I t i s my c o n t e n t i o n t h a t the p o s i t i v e e f f e c t s d i s c o v e r e d by t h i s a n a l y s i s a r e not n e c e s s a r i l y r e l a t e d t o the e f f e c t s of the government e x p e n d i t u r e s on the h o u s i n g u n i t s . The n a t u r e of the Urban Homesteading Program i s one whereby a s e l e c t e d group of new r e s i d e n t s a r e chosen on the c o n d i t i o n t h a t they w i l l i n v e s t i n t h e i r p r o p e r t i e s and remain r e s i d e n t s f o r a t l e a s t t h r e e y e a r s . T h i s s e l e c t i o n p r o c e s s i s i n i t s e l f the c r e a t i o n of a neighborhood change. I t i t i s my p e r s o n a l o p i n i o n , t h a t i f the new group i s s o c i o - e c o n o m i c a l l y d i f f e r e n t from the p r e v i o u s r e s i d e n t s , i t i s most l i k e l y t h e i r demographics which are 20 c a u s i n g the change i n p r o p e r t y v a l u e s -- not the e f f e c t s of the government h o u s i n g program. Nourse (1976) s t a t e d : " E x t e r n a l b e n e f i t s from i m p r o v i n g h o u s i n g q u a l i t y have not been proven t o e x i s t by e v i d e n c e from p r o p e r t y v a l u e s on p r o p e r t y p r i c e s and r e n t s . There i s e v i d e n c e t h a t the socio-economic c l a s s of f a m i l i e s i n a p a r t i c u l a r neighborhood i s more i m p o r t a n t than q u a l i t y of s t r u c t u r e i n d e t e r m i n i n g v a l u e (p. 250)." Varady (1982) s t a t e s : "The o b v i o u s e x p l a n a t i o n f o r the r i s e i n p r o p e r t y v a l u e s i s t h a t the v i s i b l e improvements i n homesteading p r o p e r t i e s made c u r r e n t and p r o s p e c t i v e r e s i d e n t s more c o n f i d e n t about the neighborhood's f u t u r e . T h e i r i n c r e a s e d c o n f i d e n c e c o u l d have been due, however t o improved p u b l i c s e r v i c e s or t o the i n m i g r a t i o n of m i d d l e c l a s s f a m i l i e s . U n f o r t u n a t e l y the UHD da t a s e t s do not c o n t a i n the n e c e s s a r y d a t a t o t e s t these a l t e r n a t i v e e x p l a n a t i o n s (p. 435)." I t i s t h i s r e s e a r c h e r ' s b e l i e f t h a t the e x p l a n a t i o n f o r the r i s e i n p r o p e r t y v a l u e was m i s i n t e r p r e t e d . The p r i c e a p p r e c i a t i o n was caused by a neighborhood change, not a government s u b s i d y f o r r e h a b i l i t a t i o n . The f i n a l s tudy t o be reviewed was performed by the Urban 21 Systems R e s e a r c h and E n g i n e e r i n g I n c . T h i s study a n a l y z e d the Neighborhood Housing S e r v i c e s ( N H S ) program (see Pedone 1981). The NHS program c o n s i s t s of an agreement between neighborhood r e s i d e n t s , l e n d e r s and government. The program p r o v i d e s r e h a b i l i t a t i o n a s s i s t a n c e and c o u n s e l l i n g and p r o v i d e s below market i n t e r e s t r a t e l o a n s . A d d i t i o n a l l y , the use of code i n s p e c t i o n i s employed t o s t i m u l a t e home improvement. The s t u d y measured the impact of the program on twenty NHS neighb o r h o o d s . A p p r o x i m a t e l y e i g h t e e n hundred r e s i d e n t s were i n t e r v i e w e d a t each s t a g e . P r o p e r t y v a l u e d a t a was c o l l e c t e d i n seven c i t i e s f o r NHS neighborhoods and c o n t r o l n eighborhoods. The r e s e a r c h i n d i c a t e d t h a t the NHS program d i d not c r e a t e any e x t e r n a l b e n e f i t s . I t d i d not c o n t r i b u t e t o a reduced l i k e l i h o o d of moving or t o an i n c r e a s e d p r o b a b i l i t y of i n v e s t i n g i n home improvements. Though t h e r e was a d i f f e r e n c e i n p r i c e change b e f o r e and a f t e r the program, i t i s b e l i e v e d t h a t t h e s e changes a r e due t o market r a t h e r than government i n t e r v e n t i o n f o r c e s (Pedone 1981). In summary, the f o r e g o i n g i n d i c a t e s t h a t the l i t e r a t u r e r e g a r d i n g the e x t e r n a l i t i e s c r e a t e d by government h o u s i n g p o l i c y i s i n c o n c l u s i v e . A d d i t i o n a l l y , t h e r e a r e many m e t h o d o l o g i c a l l i m i t a t i o n s t o t h e i r a n a l y t i c a l t e c h n i q u e s . F u r t h e r m o r e , t h e r e has been no a n a l y s i s of any r e h a b i l i t a t i o n p o l i c y s i m i l a r t o the RRAP program i n Canada. I t i s the o b j e c t of t h i s t h e s i s t o attempt t o do such an a n a l y s i s . The r e s u l t s of the r e g r e s s i o n a n a l y s e s i n c l u d e d w i l l a l l o w us t o determine i f the Canadian RRAP program c r e a t e s p o s i t i v e e x t e r n a l e f f e c t s on p r o p e r t y v a l u e s . F u r t h e r m o r e , the 22 da t a and methodology employed w i l l overcome many of the l i m i t a t i o n s of the p r e v i o u s s t u d i e s . T h i s t h e s i s s h o u l d p r o v i d e a more p r e c i s e and d e f i n i t i v e c o n c l u s i o n than p r e v i o u s r e s e a r c h a t t e m p t s . (2.2) Government I n t e r v e n t i o n and Neighborhood Change The c r e a t i o n of e x t e r n a l i t i e s v i a government i n t e r v e n t i o n i s one form of s t i m u l a t i n g neighborhood change. Of c o u r s e , the g o a l of p o l i c y makers i s t o induce a p o s i t i v e change. However, e v i d e n c e r e g a r d i n g c e r t a i n p o l i c i e s (such as urban renewal) s u g g e s t s t h a t the o p p o s i t e e f f e c t may have o c c u r r e d . A major r e s u l t of p u b l i c i n t e r v e n t i o n i n t o the p r i v a t e market has been the c r e a t i o n of u n c e r t a i n t y . Hence, the r o l e of e x p e c t a t i o n s has r e c e i v e d a g r e a t d e a l of s t u d y . In t h i s s e c t i o n , a r e v i e w of the t h e o r y r e g a r d i n g neighborhood change i s p r o v i d e d . T h i s d i s c u s s i o n w i l l p r e s e n t the c l a s s i c a l i n t e r p r e t a t i o n s of change as w e l l as some of the more contemporary d i s c o v e r i e s . The rev i e w s h o u l d p r e s e n t t o the reader some of the more s a l i e n t f a c t o r s which are b e l i e v e d t o c o n t r i b u t e t o change, and i n p a r t i c u l a r the importance of the r o l e of e x p e c t a t i o n s . As government can h e l p t o c r e a t e the environment i n which e x p e c t a t i o n s a r e formed, the importance of government induced e x t e r n a l i t i e s i s h i g h l i g h t e d . The f o l l o w i n g r e v i e w w i l l d i s c u s s n e i g hborhood change and i t s r e l a t i o n t o e x t e r n a l i t i e s and e x p e c t a t i o n s . In t h i s s t u d y , neighborhood change r e f e r s t o the "dynamic p r o c e s s whereby a c t u a l or e x p e c t e d changes i n a neighborhoods a t t r i b u t e s ( f o r example, income r a c e or d e n s i t y ) r e s u l t i n the a r e a becoming more or l e s s d e s i r a b l e t o i t s r e s i d e n t s " (Cameron, 23 1979). T h i s d e f i n i t i o n can accommodate s t a b i l i t y and upward or downward change. W r i t i n g s r e g a r d i n g neighborhood change can be t r a c e d back t o Hurd (1904), Park and Burgess (1925), and H a i g (1927). Hoyt (1939), i n a d i s c u s s i o n of e x t e r n a l i t i e s i n a neighborhood change c o n t e x t , d e s c r i b e d growth of c i t i e s as the e x p a n s i o n of wedges t o the o u t e r edge as h i g h income r e s i d e n t s w i t h i n t h a t s e c t o r v a c a t e a g i n g h o u s i n g and move outward. The outward e x p a n s i o n of upper income r e s i d e n t s and the " f i l t e r i n g down" of the o b s o l e t e h o u s i n g which they pass on t o lower income groups was seen as the dynamics of neighborhood change. Hoyt's a n a l y s i s of the e f f e c t of e n t r y of b l a c k s i n t o neighborhoods r e p r e s e n t e d the i n t r o d u c t i o n of a neighborhood e x t e r n a l i t y t h e o r y t o neighborhood change. H a r r i s and Ullman (1945) d e s c r i b e d the r o l e of e x t e r n a l i t i e s i n l a n d use i n t h e i r m u l t i p l e n u c l e i t h e o r y . T h e i r t h e o r y d e s c r i b e d the p a t t e r n of l a n d use t o be a f u n c t i o n of g r o u p i n g s around d i s c r e t e c e n t r e s . T h e i r t h e o r y emphasized the e x i s t e n c e of s i t e c h a r a c t e r i s t i c s and e x t e r n a l i t i e s as the d e t e r m i n a n t s of use and change. B a i l e y (1959) examined neighborhood e x t e r n a l i t i e s i n h i s model. He e x p l a i n e d how a neighborhood can undergo a change i n occupancy from one group t o a n o t h e r . H i s t h e o r y examined how a u n i l a t e r a l n u i s a n c e between groups can a f f e c t house p r i c e s and neighborhoods. In h i s model he assumed two p o p u l a t i o n groups, A and B, where the A type p r e f e r r e d not t o l i v e near the B t y p e s , and where the B's p r e f e r r e d t o l i v e near the A's (the groups may be w h i t e s and b l a c k s , low and h i g h income e t c . ) . Assuming an 24 i n i t i a l l y s e g r e g a t e d s i t u a t i o n , the p r e f e r e n c e p a t t e r n d e s c r i b e d above l e d t o a case i n which the B's p a i d a premium t o l i v e near the boundary w i t h the A's; w h i l e the A's d i s c o u n t e d the p r i c e of p r o p e r t y near the border w i t h the B's. I f p r i c e s were b i d up whereby the p r i c e s on the B s i d e s u r p a s s e d the p r i c e ' on the A s i d e , then t r a n s i t i o n from A type occupancy t o B type o c c u r r e d . A d d i t i o n a l l y , some of the p r o p e r t i e s on the i n t e r i o r of the A s i d e became boundary p r o p e r t i e s , w h i l e p r o p e r t i e s on . the boundary of B became i n t e r i o r p r o p e r t i e s . Depending on demand and s u p p l y , t h i s c o n v e r s i o n p r o c e s s c o n t i n u e d or e q u i l i b r i u m was r e a c h e d . T h i s t h e o r y h i g h l i g h t e d the importance of neighborhood demographics and t h e i r r e l a t i o n t o p r o p e r t y v a l u e s and neighborhood change. The a r b i t r a g e model (Leven e t . a l . , 1976) expanded on B a i l e y ' s model. T h i s model expanded the number of t r a i t s upon which households have p r e f e r e n c e s and c o n s e q u e n t l y a l t e r t h e i r consumption of h o u s i n g . One of the p r i m a r y assumptions of t h i s model i s t h a t p r e f e r e n c e s a r e dependent on socio-economic a t t r i b u t e s as w e l l as on h o u s i n g s t o c k c h a r a c t e r i s t i c s , a c c e s s and l o c a l p u b l i c s e r v i c e s . The model suggested t h a t i f these c h a r a c t e r i s t i c s change or i f t h e r e i s an e x p e c t a t i o n of change, then i t i s l i k e l y t h a t occupancy p a t t e r n s and p r i c e s w i l l change. As a r e s u l t neighborhoods can undergo t r a n s i t i o n . The a r b i t r a g e model e x p l i c i t l y i n t r o d u c e d e x p e c t a t i o n s and the concept t h a t i f households e x p e c t changes i n the f u t u r e they may r e a c t by moving e a r l i e r , thus s p e e d i n g up the t r a n s i t i o n p r o c e s s . The importance of e x p e c t a t i o n s have been t e s t e d by L i t t l e (1976) and Mark (1977b) who found t h a t e x p e c t a t i o n s can 25 a f f e c t p r o p e r t y v a l u e s . Other a n a l y s t s of neighborhood change i n c l u d e Goetze (1979) and Cameron (1979). Goetze suggested t h a t t h e r e a r e f o u r d i m e n s i o n s w i t h i n which change t a k e s p l a c e : m e t r o p o l i t a n dynamics, c e n t r a l c i t y d i f f e r e n t i a l s , c i t i z e n s e x p e c t a t i o n s of government and the l o c a l a d m i n i s t r a t i v e c o n t e x t . The a u t h o r a s s e r t s t h a t a l l these f a c t o r s a f f e c t e x p e c t a t i o n s and a t t i t u d e s r e g a r d i n g neighborhood change (however, the e x i s t e n c e of t h e s e impacts a r e not t e s t e d u s i n g e c o n o m e t r i c t e c h n i q u e s ) . Cameron examined the e f f e c t s of a change of z o n i n g t o a h i g h e r d e n s i t y i n Vancouver B r i t i s h C olumbia. He contends t h a t the demand f o r h o u s i n g i s a f f e c t e d by e x p e c t a t i o n s and i n t u r n the s e n s i t i v i t y w i t h which they a r e r e v i s e d are due t o p r e v i o u s ( h a r m f u l ) government a c t i v i t y . For neighborhoods t o change i n the f a c e of some e x t e r n a l i n t e r v e n t i o n , a s i g n i f i c a n t number of r e s i d e n t s must r e v i s e t h e i r e x p e c t a t i o n s ; however i n the Canadian s e t t i n g i t was b e l i e v e d t h a t no n e g a t i v e r e v i s i o n s of g e n e r a l e x p e c t a t i o n s s h o u l d o c c u r s i n c e the h i s t o r i c a l a c t i o n s of Canadian f e d e r a l h o u s i n g p o l i c y have not had l a r g e a d v e r s e e f f e c t s on l o c a l h o u s i n g m a r k e t s . One Canadian s t u d y which examined the r o l e of government as a market e x t e r n a l i t y and i t s e f f e c t s on neighborhood change was undertaken by Moore (1978). H i s model i n v e s t i g a t e d the e f f e c t s of z o n i n g b y laws. He found t h a t z o n i n g was e f f e c t i v e i n p r e v e n t i n g change o n l y i n t h o s e c a s e s where the demand f o r the new use was weak. H i s a s s e r t i o n was t h a t s i n c e z o n i n g r e f l e c t e d the concensus o p i n i o n of the r e s i d e n t s of an a r e a , z o n i n g c o u l d not c u r t a i l neighborhood change. 26 Another s t u d y , w h i l e not d i s c u s s i n g neighborhood change d i r e c t l y , does shed some l i g h t of the e f f e c t s of government i n t e r v e n t i o n on neighborhoods. G o l d b e r g and Mercer (1979) i n t h e i r s tudy of Canadian and American c i t i e s suggest t h a t d i f f e r e n t programs and i n s t i t u t i o n s account f o r the d i v e r g e n c e i n s t r u c t u r e between American and Canadian c i t i e s . I n p a r t i c u l a r they suggest t h a t the passage of the U.S. N a t i o n a l Defence Highway Act (1956), c o n t r i b u t e d a g r e a t d e a l t o the d i s p a r i t y . The a u t h o r s contend t h a t the U.S. highway c o n s t r u c t i o n program has o f t e n d e s t r o y e d v i a b l e neighborhoods and g e n e r a l l y l e d t o suburban r a t h e r than c e n t r a l c i t y developments. T h i s has e f f e c t i v e l y a c c e l e r a t e d the growth of American suburbs and d i s p e r s e d the urban a r e a . The i m p l e m e n t a t i o n of t h i s program c r e a t e d an American c i t y c h a r a c t e r i z e d by suburban s p r a w l , and a d e t e r i o r a t e d c e n t r a l c i t y . Canadian c i t i e s , on the o t h e r hand, have remained more compact than American ones of e q u i v a l e n t s i z e . In Canada, the p a u c i t y of l a r g e f e d e r a l l y funded highway systems has made a c c e s s t o the suburbs more d i f f i c u l t , t h e r e b y i n c r e a s i n g the d e s i r a b i l i t y of p r o x i m i t y t o the c i t y c e n t r e . Other examples of the importance of government i n t e r v e n t i o n a r e d e s c r i b e d by the same a u t h o r s . They suggest t h a t the d i f f e r e n c e s between Canadian and American c i t i e s a r e l i n k e d t o the degree of f e d e r a l i n t e r v e n t i o n i n the h o u s i n g markets. T h e i r h y p o t h e s i s s u g g e s t s t h a t , s i n c e the Canadian c o n s t i t u t i o n ( b o t h b e f o r e and a f t e r the new c o n s t i t u t i o n was passed) d e l e g a t e d the r e s p o n s i b i l i t y f o r the management of m u n i c i p a l i t i e s , r e a l p r o p e r t y and m a t t e r s of a p u r e l y l o c a l 27 n a t u r e t o the p r o v i n c e s , f e d e r a l i n t e r v e n t i o n i n t o h o u s i n g markets has been l e s s p r e v a l e n t i n Canada. T h i s h y p o t h e s i s i s t e s t e d by a comparison between the American and Canadian urban renewal programs. In the U n i t e d S t a t e s , p u b l i c urban renewal was e n t h u s i a s t i c a l l y implemented on a l a r g e s c a l e . In p a r t , t h i s i s a t t r i b u t a b l e t o the f a c t t h a t m u n i c i p a l i t i e s p a i d from f i v e t o ten p e r c e n t of the c o s t w i t h the f e d e r a l government p a y i n g the r e s t . In Canada, the i m p l e m e n t a t i o n of urban renewal r e q u i r e d a t r i p a r t i t e agreement among f e d e r a l governmment, the p a r t i c i p a t i n g m u n i c i p a l i t i e s , and the " h o s t " p r o v i n c e s ; moreover, i n Canada, the f e d e r a l government t y p i c a l l y p a i d 50%, the p r o v i n c e s 25% and the c i t y 25%. The e f f e c t s of urban renewal have g e n e r a l l y been n e g a t i v e i n b o t h c o u n t r i e s ; c o n s e q u e n t l y , the impact of the programs has been more s e v e r e i n the U.S. The r e s u l t has tended t o be a d e s t a b i l i z i n g i n v e s t m e n t c l i m a t e . In Canada, where the s c a l e of t h i s a c t i v i t y has been s m a l l e r , the manner i n which c i t i e s have grown has been d e t e r m i n e d t o a g r e a t e r e x t e n t by market c o n d i t i o n s . T h i s o b s e r v a t i o n i s s u p p o r t e d by the f a c t t h a t t h e r e has been c o n t i n u o u s redevelopment i n most Canadian i n n e r c i t i e s . In summary, the e f f e c t s of e x t e r n a l i t i e s on n e i g h b o r h o d change have been w i d e l y d i s c u s s e d . The r o l e of government has been examined as a c a t a l y s t a f f e c t i n g e x p e c t a t i o n s (Cameron 1979 and Goetze 1979). However, the e f f e c t s of a v o l u n t a r y , l o c a l l y based r e h a b i l i t a t i o n program (such as RRAP), on e x p e c t a t i o n s has not been t e s t e d . The a n a l y s i s of the e x t e r n a l i t i e s c r e a t e d by RRAP s h o u l d a s s i s t i n t h i s u n d e r s t a n d i n g . 28 (2.3) The D e t e r m i n a n t s of P r o p e r t y V a l u e s The g e n e r a l form of the r e g r e s s i o n e q u a t i o n s employed i n t h i s s t udy have been d e r i v e d from r e s u l t s of p r e v i o u s t h e o r e t i c a l and e m p i r i c a l f i n d i n g s . The p r i c e e q u a t i o n employed i s a h y b r i d model i n which the s a l e s p r i c e of a h o u s i n g u n i t i s r e g r e s s e d on s e v e r a l v a r i a b l e s i n c l u d i n g a c c e s s , s t r u c t u r a l , neighborhood and e x t e r n a l i t y c h a r a c t e r i s t i c s . In r e g r e s s i n g house p r i c e on s e v e r a l v a r i a b l e s i n c l u d i n g a measure of RRAP e x t e r n a l i t i e s , the e s t i m a t e d c o e f f i c i e n t s of the e x t e r n a l i t y v a r i a b l e s may be i n t e r p r e t e d as the d o l l a r amount of b e n e f i t s d e r i v e d from government i n t e r v e n t i o n , h o l d i n g a l l o t h e r h o u s i n g a t t r i b u t e s c o n s t a n t . T h i s approach i s the a p p l i c a t i o n of L i t t l e ' s (1976) t h e o r e t i c a l framework. In i t , p r i c e d i f f e r e n t i a l due t o a p a r t i c u l a r e x t e r n a l i t y may be i n t e r p r e t e d as a measure of the household's p r e f e r e n c e r e g a r d i n g t h a t e x t e r n a l i t y . In t h i s s e c t i o n , a r e v i e w of the t h e o r e t i c a l and e m p i r i c a l j u s t i f i c a t i o n f o r t h i s approach i s p r e s e n t e d . T h i s d i s c u s s i o n w i l l h i g h l i g h t the v a l i d i t y of the model employed and p r o v i d e the reader w i t h i n s i g h t t o i t s f o u n d a t i o n . One of the f i r s t t h e o r e t i c a l a p p r o x i m a t i o n s of the r e l a t i o n s h i p between e x t e r n a l i t i e s and l a n d p r i c e s i s based on von Thunen's t r a n s p o r t o r i e n t e d model (1826). Von Thunen argued t h a t l a n d p r i c e s around a c e n t r a l market p l a c e a r e d e t e r m i n e d by b i d d e r s f o r v a r i o u s p a r c e l s of l a n d . In h i s a n a l y s i s , the b i d d e r s were d i f f e r e n t a g r i c u l t u r a l u s e r s and t h e i r b i d s were dependent on the d i s t a n c e from the c e n t r a l market t o the s p e c i f i c s i t e . H i s t h e o r y i n d i c a t e d t h a t c l o s e r s i t e s 29 r e p r e s e n t e d a lower t r a n s p o r t a t i o n c o s t and t h e r e f o r e c o u l d command h i g h e r p r i c e s . S i n c e 1826, when von Thunen's work was f i r s t p u b l i s h e d , the stud y of house and l a n d p r i c e s has a t t r a c t e d much i n t e r e s t and e v o l v e d i n t o a r a t h e r complex f i e l d i n i t s own r i g h t . A l o n s o (1964) f o r m a l i z e d the work of von Thunen i n t o m a t h e m a t i c a l terms. S p e c i f i c a l l y , A l o n s o assumes t h a t the household maximized a u t i l i t y f u n c t i o n of the form: U= U ( q, t , c) s u b j e c t t o a budget c o n s t r a i n t y= p.c + p ( t ) . q + k ( t ) where u = household u t i l i t y q = l o t s i z e t = d i s t a n c e from the CBD c = composite good y = income, assumed t o be f i x e d p = p r i c e of the composite good, assumed t o be f i x e d p ( t ) = p r i c e of l a n d , assumed t o be a n e g a t i v e f u n c t i o n of d i s t a n c e k ( t ) = commuting c o s t s , assumed t o be a p o s i t i v e f u n c t i o n The f i r s t o r d e r m a x i m i z a t i o n of t h i s e q u a t i o n r e q u i r e s t h a t i n e q u i l i b r i u m the m a r g i n a l r a t e of s u b s t i t u t i o n between d i s t a n c e and l a n d w i l l be e q u a l t o the r a t i o of t h e i r r e s p e c t i v e m a r g i n a l c o s t s . A l o n s o used t h i s model t o examine how d i f f e r e n t income groups a r e d i s t r i b u t e d around the urban a r e a . The study of d i s t a n c e i n t h i s model l e d t o the d e r i v a t i o n of b i d p r i c e c u r v e s , which i n d i c a t e c o m b i n a t i o n s of l a n d and d i s t a n c e s between which the 30 h o u s e h o l d i s i n d i f f e r e n t . A l o n s o showed t h a t i n e q u i l i b r i u m , the s l o p e of the b i d p r i c e c u r v e s w i l l e q u a l the s l o p e of the p r i c e l i n e . F u r t h e r m o r e , the m a r g i n a l r a t e of s u b s t i t u t i o n between l a n d and d i s t a n c e w i l l change when income i n c r e a s e s , and the net e f f e c t w i l l l e a d t o a s t e a p e r b i d p r i c e c u r v e . A l o n s o ' s t h e o r y examining the e f f e c t of t a s t e s and income on d i s t a n c e i s im p o r t a n t i n t h i s t h e s i s , s i n c e a v a r i a b l e s p e c i f y i n g d i s t a n c e t o the c e n t r a l b u s i n e s s d i s t r i c t i s employed i n the r e g r e s s i o n e q u a t i o n . F o l l o w i n g A l o n s o , the r e l a t i o n s h i p between d i s t a n c e from the c e n t r a l b u s i n e s s d i s t r i c t and urban l a n d v a l u e s r e c e i v e d a g r e a t d e a l of a t t e n t i o n from a n a l y s t s such as Brigham (1964), M i l l s (1969) and Q u i g l e y (1973), (see Mark 1977b). These r e s e a r c h e r s c o n f i r m e d A l o n s o ' s work and suggested t h a t the v a r i a b l e f o r d i s t a n c e from the c e n t r e i s n e g a t i v e and s i g n i f i c a n t . In a d i s c u s s i o n of h o u s i n g p r i c e s , a n a l y s t s , such as W i l k e r s o n (1974), B e r r y and Bednarz (1975) found t h a t d i s t a n c e was p o s i t i v e l y r e l a t e d t o p r i c e . A l t e r n a t e l y , o t h e r s t u d i e s , from Anderson and C r o c k e r (1971) and K a i n and Q u i g l e y (1970) found d i s t a n c e t o be i n s i g n i f i c a n t . From the above s t u d i e s , i t i s not c l e a r what e f f e c t d i s t a n c e has on house or l a n d p r i c e s . The bes t i n t e r p r e t a t i o n (Mark, 1977b) i s t h a t i n those a r e a s t h a t a r e m o n o c e n t r i c , d i s t a n c e from the CBD i s much more l i k e l y t o be n e g a t i v e l y r e l a t e d t o p r i c e than i n those c i t i e s which a re p o l y c e n t r i c . R e c e n t l y , the st u d y of urban l a n d p r i c e s has expanded t o a n a l y z e a v a r i e t y of p o s s i b l e p r i c e d e t e r m i n a n t s . The major s t u d i e s d e a l w i t h a c c e s s ( d i s t a n c e t o the CBD), the environment 31 ( a i r p o l l u t i o n , n o i s e , a i r p o r t s , highways, f l o o d s , ) p u b l i c s e r v i c e s ( e d u c a t i o n and p a r k s ) neighborhoods ( r a c e , p u b l i c h o u s i n g , u n i v e r s i t i e s ) , and h o u s i n g c h a r a c t e r i s t i c s ( the s i z e of the s t r u c t u r e , the number of bedrooms, e x i s t e n c e of a garage, e t c . ) . Z e r b s t and E l d r e d (1977) p r o v i d e an e x c e l l e n t c o n c e p t u a l framework f o r the i n t e r r e l a t i o n s h i p of the s e house p r i c e d e t e r m i n e n t s . The a u t h o r s suggest t h a t "when i n d i v i d u a l home buyers purchase a d w e l l i n g u n i t , they buy not j u s t b r i c k and mortar but r a t h e r a whole 'bundle' of h o u s i n g s e r v i c e s p r o v i d e d at a p a r t i c u l a r s i t e " ( p.10). The a n a l y s t s i n d i c a t e t h a t the s a l e s p r i c e of a d w e l l i n g u n i t i s a f u n c t i o n o f : (a) the p h y s i c a l c h a r a c t e r i s t i c s of the s i t e ; (b) the p h y s i c a l c h a r a c t e r i s t i c s of the s t r u c t u r e ; and (c) the c h a r a c t e r i s t i c s of the l o c a t i o n . Hence, t o improve the e s t i m a t e i n m u l t i p l e r e g r e s s i o n a n a l y s i s , independent v a r i a b l e s from a l l t h r e e c a t e g o r i e s s h o u l d be i n c l u d e d . A g r a p h i c a l d i s p l a y below i l l u s t r a t e s t h i s c o n c e p t . 32 FIGURE 1 A CONCEPTUAL MODEL DEPICTING THE (*Source: Z e r b s t and E l d r e d DETERMINANTS OF MARKET VALUE 1977, p.11) HOUSING SERVICES MARKET VALUE STRUCTURAL CHARACTERISTICS LOCATIONAL CHARACTERISTICS-SITE CHARACTERISE CS---QUANTITY QUALITY -ACCESIBILITY -ENVIRONMENT •SITE SIZE -SITE AMENITIES -INSTITUTIONAL CONSTRAINTS •-MARKET IMPERFECTIONS FINANCIAL IMPERFECTIONS 33 R i c h a r d s o n , V i p o n d and Furbey (1974), t e s t e d f o u r a l t e r n a t i v e but s i m i l a r t h e o r i e s of h o u s i n g p r i c e d e t e r m i n a n t s . The t e s t was performed by e s t i m a t i n g e q u a t i o n s i n which the dependent v a r i a b l e was the s a l e s p r i c e of a d w e l l i n g u n i t and the independent v a r i a b l e s were d i f f e r e n t a t t r i b u t e s of the p r o p e r t y . The f o u r models t e s t e d were a 'housing c h a r a c t e r i s t i c s ' model where the independent v a r i a b l e s were c h a r a c t e r i s t i c of the u n i t i t s e l f ; a 'pure s p a t i a l ' model where the independent v a r i a b l e s d e s c r i b e the l o c a t i o n of the u n i t i n t o p o g r a p h i c a l and s p a t i a l terms; an ' a c c e s s i b i l i t y ' model where the p r i m a r y independent v a r i a b l e was d i s t a n c e from the CBD and an ar e a p r e f e r e n c e model where the independent v a r i a b l e d e s c r i b e d the q u a l i t y of the neighborhood i n which the u n i t was l o c a t e d . The a n a l y s t s c o n c l u d e d t h a t no one model i s best i n terms of e x p l a i n i n g house p r i c e s . T h e r e f o r e , r e s e a r c h e r s i n t h i s a r e a s h o u l d not l i m i t t h e mselves t o the e x a m i n a t i o n of o n l y one model, but s h o u l d f o c u s on a ' h y b r i d ' . Mark (1977a) f u r t h e r examined the R i c h a r d s o n , V i p o n d and Furbey, c o n c l u s i o n . H i s a n a l y s i s c o n c u r r e d w i t h the ot h e r _ a n a l y s t s . However he argued t h a t m e t h o d o l o g i c a l l y the h y b r i d model i s the most p r o f i c i e n t . The a u t h o r s t a t e d : "RVF s t a t e t h a t t h e i r r e s u l t s do not a l l o w them t o choose one p a r t i c u l a r model which i s the b e s t e x p l a i n e r of house p r i c e s because t h e i r R 2 v a l u e s a r e so c l o s e t o g e t h e r , and t h e r e f o r e they argue t h a t a h y b r i d model s h o u l d be t e s t e d . There i s a much b e t t e r reason f o r t e s t i n g such a model. Because many of the v a r i a b l e s ( a t l e a s t i n our study) a r e so 34 h i g h l y c o r r e l a t e d , i t i s not unusual t o f i n d one v a r i a b l e measuring the e f f e c t of another v a r i a b l e . For example, because LOTSIZE and DISTCBD) a r e so h i g h l y c o l l i n e a r , we cannot c o n c l u d e t h a t the h o u s i n g c h a r a c t e r i s t i c s model ( w i t h o u t DISTCBD) i s measuring o n l y the e f f e c t s of the s t r u c t u r a l v a r i a b l e s . Thus we need t o e s t i m a t e an e q u a t i o n t h a t i n c l u d e s both LOTSIZE and DISTCBD so as t o measure the e f f e c t s of each s t a n d a r d i s e d f o r each o t h e r (p. 362)." The above argument su g g e s t s t h a t b o t h from a m e t h o d o l o g i c a l and a p r e d i c t i v e a b i l i t y v i e w p o i n t , a h y b r i d model i s the b e s t e q u a t i o n . T h i s e v i d e n c e i s r e s p o n s i b l e f o r the s p e c i f i c a t i o n of the model employed i n t h i s s t u d y . The e q u a t i o n t o be e s t i m a t e d i s d e s c r i b e d a s : SP = a + b(S) + b(L) + b(E) + b(PS) + b(GE) 1 2 3 4 5 where: SP= S a l e s P r i c e b - b = c o e f f i c i e n t s t o be de t e r m i n e d 1 5 S= h o u s i n g s t r u c t u r a l c h a r a c t e r i s t i c s L= l o c a t i o n a l c h a r a c t e r i s t i c s E= e n v i r o n m e n t a l c h a r a c t e r i s t i c s PS= p u b l i c s e r v i c e c h a r a c t e r i s t i c s GE= government e x t e r n a l i t y c h a r a c t e r i s t i c s T h i s type of e q u a t i o n w i l l e x p l a i n s a l e s p r i c e by the v a r i o u s d e t e r m i n a n t s i n c l u d i n g s t r u c t u r a l , l o c a t i o n a l , e n v i r o n m e n t a l , 35 p u b l i c s e r v i c e , and government e x t e r n a l i t y c h a r a c t e r i s t i c s . Depending on the a ssumptions employed, the i n t e r p r e t a t i o n of the c o e f f i c i e n t s may be d i f f e r e n t . Under hedonic p r i c e t h e o r y the assumption i n d i c a t e s t h a t the c o e f f i c i e n t s have c a r d i n a l p r o p e r t i e s . Under the p r e f e r e n c e approach, o n l y the c o e f f i c i e n t s of the e x t e r n a l i t y v a r i a b l e s have c a r d i n a l p r o p e r t i e s , w h i l e a l l the o t h e r c o e f f i c i e n t s have o r d i n a l p r o p e r t i e s . Rosen (1974) s u g g e s t s t h a t t h e r e a r e problems u s i n g h e d o n i c t h e o r y as a b a s i s f o r i n t e r p r e t i n g the c o e f f i c i e n t s , i n t h a t g e n e r a l l y , hedonic p r i c e may not be i n t e r p r e t e d as e i t h e r s u p p l y or demand p r i c e . Mark (1980) s u g g e s t s t h a t the p r e f e r e n c e approach t o i n t e r p r e t i n g p r i c e d i f f e r e n t i a l s i s p r e f e r a b l e t o the hedonic approach. Hence, the i n t e r p r e t a t i o n of the c o e f f i c i e n t s i n t h i s t h e s i s w i l l be under the p r e f e r e n c e approach a c c o r d i n g t o L i t t l e (1976) . The f o l l o w i n g , which i s t a k e n from L i t t l e ( 1976), s e t s out the s p e c i f i c assumptions of the p r e f e r e n c e model. They a r e : 36 (1) h o u s i n g i s a m u l t i d i m e n s i o n a l bundle of goods; (2) a l l non-housing goods a r e lumped t o g e t h e r i n t o a s i m p l e composite good w i t h u n i t p r i c e ; (3) households have an i n i t i a l a l l o c a t i o n of money, income and h o u s i n g ; (4) There e x i s t i d e n t i c a l consumers who e x e r c i s e t h e i r freedom of c h o i c e t o purchase the e x t e r n a l i t y or n o t ; . (5) The u t i l i t y f u n c t i o n i s a s e p a r a b l e f u n c t i o n of h o u s i n g and the composite good; (6) The e x t e r n a l i t y i s s e p a r a b l e i n the u t i l i t y f u n c t i o n ; (7) The u t i l i t y f u n c t i o n i s h o m e o t h e t i c . In m a t h e m a t i c a l terms, the maximum b i d of ho u s e h o l d i f o r u n i t j ; denoted by B i s d e f i n e d by: Uf[ X j , M - B j j ] = U.[ X 0 , M ] ; where: U|= u t i l i t y f u n c t i o n of i Xj= an a l t e r n a t i v e h o u s i n g u n i t M = i n i t i a l income = h o l d i n g s of the composite good X Q= i n i t i a l h o u s i n g u n i t 37 A c c o r d i n g t o t h i s e q u a t i o n , consumers maximize u t i l i t y and s e l l e r s maximize p r o f i t s , g i v e n the s e t of p r i c e s and incomes. The a p p l i c a t i o n of the L i t t l e (1976) approach i m p l i e s t h a t i f the e x i s t e n c e of e x t e r n a l b e n e f i t s by the RRAP program i s the o n l y d i f f e r e n c e between two u n i t s , then the p r i c e d i f f e r e n c e p r o v i d e s an e s t i m a t e of the e f f e c t of t h i s e x t e r n a l i t y . In summary, the m e t h o d o l o g i c a l r e s e a r c h suggests t h a t the h y b r i d model i s b e s t f o r the d e t e r m i n a t i o n of h o u s i n g v a l u e s . Hence, a h y b r i d model i s employed h e r e . A d d i t i o n a l l y , r e s e a r c h i n d i c a t e s t h a t the best i n t e r p r e t a t i o n of the c o e f f i c i e n t s i s under the p r e f e r e n c e approach, whereby the e x t e r n a l i t y v a r i a b l e s have c a r d i n a l v a l u e s and the o t h e r v a r i a b l e s have o r d i n a l v a l u e s . For t h i s reason a p r e f e r e n c e approach i s employed. F i n a l l y , the above l i t e r a t u r e r e v i e w i n d i c a t e s t h a t the p r i c e d i f f e r e n t i a l between two h o u s i n g u n i t s , which a r e s t a n d a r d i z e d -except f o r the e x i s t e n c e of an e x t e r n a l i t y , s h o u l d be i n t e r p r e t e d as the v a l u e of the e x t e r n a l i t y t o the p r o p e r t y owner. 38 FOOTNOTES (1) The study sampled a t o t a l of 50 neighborhoods i n which t h e r e were h o u s i n g p r o j e c t s . However the neighborhoods were i n d i f f e r e n t s o c i o - e c o n o m i c a r e a s and were s t r a t i f i e d a c c o r d i n g t o e s t i m a t e d market r e n t s . The a c t u a l sample s i z e s were t h e r e f o r e : E s t i m a t e d Market Rent Sample S i z e $/room/month 25-34 12 35-44 15 45-54 14 55 and over 9 (2) See f o o t n o t e 1. 39 CHAPTER 3 REHABILITATION PROGRAMS IN CANADA  (3.1) The R e s i d e n t i a l R e h a b i l i t a t i o n A s s i s t a n c e Program (RRAP) The R e s i d e n t i a l R e h a b i l i t a t i o n A s s i s t a n c e Program was e s t a b l i s h e d i n c o n j u n c t i o n w i t h the Neighborhood Improvement Program t o p r o v i d e a comprehensive improvement program f o r i n n e r c i t y a r e a s . RRAP was implemented w i t h NIP a s : "a major a t t a c k on Canada's problem of s u b s t a n d a r d and d e t e r i o r a t i n g h o u s i n g s t o c k . . . ( S o c i a l P o l i c y R e s e a r c h A s s o c i a t e s 1979 p. 1 ) . " RRAP r e p r e s e n t e d a major s h i f t i n Canadian urban h o u s i n g p o l i c y - a s h i f t away from a s t r a t e g y of c l e a r a n c e and urban r e n e w a l , and towards c o n s e r v a t i o n and p r e s e r v a t i o n . The RRAP program p r o v i d e s funds f o r homeowners, l a n d l o r d s , n o n p r o f i t c o r p o r a t i o n s and h o u s i n g c o - o p e r a t i v e s , as w e l l as handicapped p e r s o n s . Funds a r e a l l o c a t e d f o r major r e p a i r s which might i n c l u d e f o u n d a t i o n s , s t r u c t u r e s , w i r i n g , p l u m b ing, r o o f i n g , e t c . , as w e l l as f o r minor r e p a i r s , such as windows, g u t t e r s , k i t c h e n c o u n t e r s , i n t e r i o r f i n i s h , e t c . To be e l i g i b l e f o r f u n d i n g , h o u s i n g u n i t s must be i n a d e s i g n a t e d neighborhood improvement a r e a and must be s u b - s t a n d a r d i n a t l e a s t one of the s p e c i f i e d r e p a i r a r e a s mentioned above. 1 Homeowners are e l i g i b l e f o r RRAP l o a n s up t o $10,000.00 a t a p r e f e r r e d i n t e r e s t r a t e , depending on the c o s t of e l i g i b l e r e p a i r s . Some homeowners are e l i g i b l e f o r a non-r e p a y a b l e g r a n t of up t o $3,750.00, depending on t h e i r a d j u s t e d f a m i l y income. Homeowners earn the g r a n t s by c o n t i n u i n g t o own or occupy the h o u s i n g u n i t a f t e r the work has been completed. The g r a n t 40 a s s i s t a n c e i s earned a t a r a t e of $750.00 per year of r e s i d e n c e of the owner. E l i g i b i l i t y of l a n d l o r d s f o r RRAP l o a n s i s w i t h o u t income l i m i t a t i o n s ; they may r e c e i v e 50 per cen t of r e h a b i l i t a t i o n c o s t s as g r a n t s f o r e l i g i b l e r e p a i r s up t o a maximum amount of $2,500.00 per u n i t . 2 Repayable N a t i o n a l Housing A c t (N.H.A.) i n s u r e d l o a n s may a l s o be a r r a n g e d from Canada Mortgage and Housing C o r p o r a t i o n (CMHC) l e n d e r s . However, l a n d l o r d s must agree t o r e n t c o n t r o l f o r the term r e q u i r e d t o earn the f o r g i v a b l e l o a n . N o n - p r o f i t c o r p o r a t i o n s and h o u s i n g c o - o p e r a t i v e s a l s o q u a l i f y f o r RRAP f u n d i n g r e g a r d l e s s of l o c a t i o n . F i n a n c i n g i s a v a i l a b l e f o r t he r e h a b i l i t a t i o n of n o n - p r o f i t h o u s i n g and/or c o n v e r s i o n t o n o n - p r o f i t h o u s i n g . R e h a b i l i t a t i o n c o s t s and e l i g i b l e r e p a i r s may be funded by g r a n t s up t o a maximum of $3,750.00 per u n i t , w i t h t h i s amount earned a t an a n n u a l r a t e of $250.00 per bed u n i t and $375.00 per s e l f - c o n t a i n e d s u i t e . In a d d i t i o n , n o n - p r o f i t c o r p o r a t i o n s must a l s o agree t o c o n t r o l r e n t s f o r the term r e q u i r e d , t o earn the f o r g i v a b l e l o a n . In the f o l l o w i n g c h a r t s , some d e s c r i p t i v e s t a t i s t i c s r e p r e s e n t i n g the s o c i o - d e m o g r a p h i c s of the r e c i p i e n t s of RRAP f u n d i n g a re p r e s e n t e d . A comparison between RRAP r e c i p i e n t s and the average f o r Vancouver i s a l s o p r o v i d e d . A d d i t i o n a l l y , i n f o r m a t i o n r e g a r d i n g the t y p e s of e x p e n d i t u r e s undertaken as a r e s u l t of RRAP i s i n c l u d e d . 41 T a b l e 1 DESCRIPTIVE STATISTICS OF RRAP RECIPIENTS HOMEOWNERS ADJUSTED FAMILY INCOME $ RRAP VANCOUVER LENGTH OF RESIDENCE IN UNIT (YEARS) RRAP VANCOUVER 0 0. 6 N.A. below 1 2 .5 8.4 1-2000 4. 9 N.A. 1 - 5 23 .2 30.3 2001 t o 4000 26. 0 N.A. 6- 10 1 2 . 1 19.5 4001 t o 6000 31 . 5 N.A. 1 1 -1 5 1 1 .2 1 1.7 6001 t o 8000 16. 3 N.A. above 1 5 51 .0 30.0 8001 t o 1 1 000 16. 7 N.A. ----above 11000 3. 9 N.A. 100 .0 100.0 100. 0 AGE OF HOMEOWNER (YEARS) RRAP VANCOUVER MARITAL STATUS RRAP VANCOUVER below 25 2.1 1 .8 25 - 34 10.4 18.2 S i n g l e 4.2 32.0 35-44 8.9 22. 1 Marr i e d 62.3 51 .0 45-54 14.0 22.0 Widow 24.9 12.3 55-64 23.6 18.0 Widower 3.7 2.8 above 64 40.9 17.9 S e p e r a t e d or D i v o r c e d 4.9 1.9 1 00.0 100.0 1 00.0 1 00. AGE OF PROPERTY ( y e a r s ) RRAP VANCOUVER Below 20 8.6 31 .7 20-29 15.9 16.2 30-39 16.7 11.5 40-59 26. 1 29.2 Above 59 32.7 11.4 1 00.0 100.0 •Source: CMHC, Program E v a l u a t i o n U n i t 1977, N a t i o n a l Sample and S a t i s t i c s Canada 1971,1976. 42 TABLE 2 DESCRIPTIVE STATISTICS OF RRAP RECIPIENTS LANDLORDS ANNUAL RENT PER UNIT AGE OF PROPETY AT TIME OF REHAB $ (YEARS) RRAP VANCOUVER RRAP VANCOUVER Below 601 4.3 6.7 Below 20 6.8 17.5 601 t o 1200 18.4 21 .3 20 -29 8.5 17.4 1201- 2400 63.3 65.2 30 -39 9.3 7.8 Above 2400 14.1 6.8 40 -59 24.9 27.6 Above 59 50.5 29.7 100.0 100.0 1 00.0 1 00.0 HOUSE TYPE BY BUILDING RRAP VANCOUVER S i n g l e - d e t a c h e d 71.5 10.0 Semi-detached 2.2 7.8 Duplex 16.1 6.9 T r i p l e x 4.8 N.A. Row 2.8 2.1 Apartment 2.5 72.2 100.0 100.0 *Source: CMHC, Program E v a l u a t i o n U n i t 1 9 7 7 , N a t i o n a l Sample and S t a t i s t i c s Canada 1971,1976. 43 TABLE 3 PERCENTAGE DISTRIBUTION OF UNITS BY TYPE OF REPAIR 1975-1976 % HOMEOWNER UNITS % LANDLORD UNITS TYPE OF REPAIR NO SOME REHAB REHAB TOTAL NO REHAB SOME REHAB TOT, FOUNDATION OR BASEMENT 34 66 1 00 51 49 100 EXTERIOR CLADDING 46 54 1 00 41 59 100 DOORS AND WINDOWS 45 55 1 00 36 64 100 ROOF 50 50 1 00 48 52 100 CHIMNEY 80 20 1 00 77 23 100 WALLS AND CEILINGS 55 45 100 45 55 100 FLOORS AND STAIRS 55 45 1 00 43 57 100 HEATING 75 25 1 00 65 35 100 ELECTRICAL 60 40 1 00 50 50 100 PLUMBING 57 43 1 00 47 53 1 00 SITE & ANCILLARY 76 24 1 00 71 29 100 * Source: CMHC, Program E v a l u a t i o n U n i t 1977 N a t i o n a l Sample These t a b l e s i n d i c a t e t h a t homeowner r e c i p i e n t s of RRAP have low incomes (63% earn l e s s than $6000, compared t o $15,000 f o r the n a t i o n a l a v e r a g e ) ; w h i l e l a n d l o r d r e c i p i e n t s have low r e n t p r o p e r t i e s (86% have r e n t a l c o s t s of l e s s than $2400). Most of 44 the r e c i p i e n t s of RRAP are e l d e r l y (41% are above 64 y e a r s of age, and 24% a r e between 55 and 64).The m a j o r i t y a r e m a r r i e d ( 6 2 . 3 % ) , or widowed ( 2 4 . 9 % ) . Most of the homeowner p r o p e r t i e s (58.8%) a r e over 40 y e a r s o l d , as are most r e n t a l p r o p e r t i e s ( 7 5 . 4 % ) . Many homeowners (51%) have l i v e d i n t h e i r r e s i d e n c e s f o r l o n g e r than 15 y e a r s . Other d e s c r i p t i v e s t a t i s t i c s i n d i c a t e t h a t the m a j o r i t y (71.5%) of the r e n t a l accommodation i s s i n g l e d e tached or dup l e x ( 1 6 . 1 % ) . The m a j o r i t y of r e p a i r s f o r homeowners tend t o be the f o u n d a t i o n or basement ( 6 6 % ) ; doors and windows ( 5 5 % ) ; e x t e r i o r c l a d d i n g ( 5 4 % ) ; or r o o f i n g ( 5 0 % ) . For l a n d l o r d s t h e i r r e p a i r s t e n d t o be m a i n l y doors and windows ( 6 4 % ) , e x t e r i o r c l a d d i n g ( 5 9 % ) , o r w a l l s and c e i l i n g s ( 5 5 % ) . The o b j e c t i v e s of RRAP as s t a t e d by Rostum (1977) of the Program E v a l u a t i o n U n i t , CMHC, were: (a) To p r o v i d e s u f f i c i e n t f i n a n c i a l a s s i s t a n c e t o low and moderate income homeowners l i v i n g i n s u b s t a n d a r d h o u s i n g and t o l a n d l o r d s of s u b s t a n d a r d u n i t s o c c u p i e d by low and moderate income t e n a n t s f o r the purposes of r e h a b i l i t a t i n g t h e i r d w e l l i n g s up t o minimum s t a n d a r d s . (b) To p r o v i d e f i n a n c i a l a s s i s t a n c e f o r r e h a b i l i t a t i o n w i t h o u t c a u s i n g undue f i n a n c i a l debt t o homeowners and w i t h o u t c a u s i n g r e n t i n c r e a s e s w hich would r e s u l t i n f i n a n c i a l h a r d s h i p f o r t e n a n t s . 45 (c) To emphasize the r e p a i r and maintenance of s t r u c t u r a l and s e r v i c e s components of the u n i t and i t s immediate s u r r o u n d i n g s . (d) To p r o v i d e s u f f i c i e n t i n c e n t i v e t o b o t h l a n d l o r d s and homeowners t o take advantage of the program. (e) To h e l p i n c o u n t e r a c t i n g the r a t e of d e t e r i o r a t i o n of s p e c i f i e d a r e a s by i m p r o v i n g the q u a l i t y of the h o u s i n g s t o c k . ( f ) To i n c r e a s e low c o s t r e n t a l accommodation by en c o u r a g i n g n o n - p r o f i t c o r p o r a t i o n s t o r e h a b i l i t a t e and/or c o n v e r t d w e l l i n g s . (g) To promote an a c c e p t a b l e l e v e l of maintenance of the e x i s t i n g h o u s i n g s t o c k by e n c o u r a g i n g m u n i c i p a l i t i e s t o adopt and implement maintenance and occupancy bylaws. With the t e r m i n a t i o n of urban r e n e w a l , the Neighborhood Improvement Program, and soon the Canada Home R e n o v a t i o n Program, RRAP w i l l remain as one of the main h o u s i n g c o n s e r v a t i o n programs i n Canada; o n l y the Canadian Home I n s u l a t i o n Program has a l a r g e r f i n a n c i a l commitment. Hence, i t i s i m p o r t a n t t o und e r s t a n d the e f f e c t s of t h i s program on the markets i n which i t o p e r a t e s . I n the next s e c t i o n , a d i s c u s s i o n of the p r e v i o u s e v a l u a t i o n s i s p r e s e n t e d . 46 (3.2) P r i o r E v a l u a t i o n s Of RRAP There have been s e v e r a l e v a l u a t i o n s of RRAP i n the p a s t . U n f o r t u n a t e l y , a l l of the s e s t u d i e s have been e i t h e r d e s c r i p t i v e , s u b j e c t i v e or i m p l e m e n t a t i o n o r i e n t e d . Most s t u d i e s have examined the t e c h n i c a l a s p e c t s of the program. The a n a l y s e s have examined t h e s p e c i f i c s of t h e income g u i d e l i n e s , the d a t a c o l l e c t i o n system, and the amount of the f o r g i v a b l e l o a n s e t c . Not one of t h e s e s t u d i e s have e m p i r i c a l l y examined the economic e f f e c t s of the program on p r o p e r t y v a l u e s . The e v a l u a t i o n s have r e f e r r e d t o the importance of such knowledge, but have never t e s t e d f o r the e f f e c t s d i r e c t l y . One of the f i r s t major s t u d i e s of the program was performed by Rostum (1977) of the Program E v a l u a t i o n U n i t , C o r p o r a t e P l a n n i n g D i v i s i o n , CMHC. T h i s s t u d y , e n t i t l e d R e s i d e n t i a l R e h a b i l i t a t i o n  Program: An E v a l u a t i o n of Performance, examined the program w i t h the o b j e c t i v e of e s t a b l i s h i n g whether p u b l i c funds were b e i n g p r o p e r l y a l l o c a t e d t o a c h i e v e h o u s i n g and community improvement o b j e c t i v e s . The study f o c u s s e d on the c l i e n t s b e i n g s e r v e d , the houses r e p a i r e d and the p u b l i c and p r i v a t e c o s t s i n v o l v e d i n the program d e l i v e r y . T h i s study was the f i r s t attempt a t p r o v i d i n g a n a t i o n a l p e r s p e c t i v e on RRAP. The s t u d y a s s e s s e d the program a c c o r d i n g t o the o b j e c t i v e s and s t a t e d : " i n meeting t h e s e o b j e c t i v e s t h e r e may be some s p i l l - o v e r e f f e c t s of RRAP, the more so s i n c e the program's o b j e c t i v e s as s t a t e d above have r e l a t i v e l y h i g h s o c i a l c o n t e n t (p. 7 ) . " 47 T h i s i n d i c a t e s t h a t t h e r e was concern about e x t e r n a l i t i e s . However the a n a l y s i s undertaken d i d not p r o v i d e any i n s i g h t t o t h i s q u e s t i o n . The r e p o r t s t a t e d : "No attempt has been made i n t h i s paper t o c o m p r e h e n s i v e l y examine the a p p r o p r i a t e n e s s of RRAP's o b j e c t i v e s or the economic e f f e c t s on the a r e a s i n which the program o p e r a t e s . T h i s i s not t o say t h a t these a r e not i m p o r t a n t a r e a s f o r i n v e s t i g a t i o n . They a r e i m p o r t a n t and s h o u l d be c o n s i d e r e d i n f u t u r e e v a l u a t i o n s of RRAP (p. 5 5 ) . " S u b s e q u e n t l y , t h e r e have been t h r e e major n a t i o n a l a n a l y s e s on RRAP: ( 1 ) A F o l l o w up t o the E v a l u a t i o n of the R e s i d e n t i a l  R e h a b i l i t a t i o n A s s i s t a n c e Program, H u s s e i n Rostum ( 1 9 7 8 ) . (2) An E v a l u a t i o n of RRAP, S o c i a l P o l i c y R e s e a r c h A s s o c i a t i o n ( 1 9 7 9 T ! (.3) A Report on the R e s i d e n t i a l R e h a b i l i t a t i o n A s s i s t a n c e  Program, Canadian A s s o c i a t i o n of Housing Renewal O f f i c i a l s and CMHC, the J o i n t Task Force ( 1 9 8 1 ) . U n f o r t u n a t e l y , not one of these s t u d i e s d i d an economic e v a l u a t i o n of the impact of the RRAP program. As a r e s u l t t h e s e a n a l y s e s a r e not a p p l i c a b l e t o the t o p i c of t h i s t h e s i s . T h i s l a c k of i n f o r m a t i o n makes t h i s s t u d y w o r t h w h i l e . 3 In the f o l l o w i n g c h a p t e r , a d i s c u s s i o n of the neighborhood i n which the stu d y t a k e s p l a c e , and the methodology employed, w i l l p r o v i d e a new dimensi o n t o the a n a l y s i s of t h i s program, by e x p l i c i t l y l o o k i n g a t the economic impacts of RRAP. B e f o r e p r o c e e d i n g , an 48 e x a m i n a t i o n of RRAP's companion program, the Neighborhood Improvement Program, i s p r o v i d e d . (3.3) The Neighborhood Improvement Program In December, 1969, The C a b i n e t d e c i d e d t o end urban renewal and c r e a t e the Neighborhood Improvement Program ( N I P ) . In comparison t o i t s p r e d e c e s s o r , NIP r e p r e s e n t e d a much more s e n s i t i v e a p r o a c h t o governmental i n t e r v e n t i o n i n the redevelopment and r e h a b i l i t a t i o n of i n n e r c i t y a r e a s . NIP was d e s i g n e d t o a s s i s t m u n i c i p a l i t i e s , i n c o n c e r t w i t h c i t i z e n p a r t i c i p a t i o n , t o improve the p h y s i c a l environment i n neighborhoods. The Neighborhood Improvement Program p r o v i d e d l o a n s and g r a n t s t o m u n i c i p a l i t i e s f o r l a n d c l e a r a n c e , r e l o c a t i o n , a d m i n i s t r a t i o n and b a s i c i n f r a s t r u c t u r e . I t a l s o p r o v i d e d f o r s i d e w a l k s , r e c r e a t i o n a l a r e a s , roads and o t h e r c a p i t a l improvements needed t o support the planned r e h a b i l i t a t i o n . By p r o v i d i n g t h i s a s s i s t a n c e , an attempt was made t o c r e a t e an atmosphere which would generate p r i v a t e r e i n v e s t m e n t i n i n n e r c i t y r e s i d e n t i a l a r e a s . 49 There were s i x s p e c i f i c o b j e c t i v e s of the program, as s t a t e d i n the NIP O p e r a t o r ' s Handbook (CMHC, 1975): (1) To improve those r e s i d e n t i a l neighborhoods which show e v i d e n c e of need and p o t e n t i a l v i a b i l i t y . (2) To improve and m a i n t a i n the q u a l i t y of the p h y s i c a l environment of the neighborhood. (3) To improve the a m e n i t i e s of the neighborhood. (4) To i n c r e a s e the e f f e c t of r e l a t e d programs. (5) To improve the neighborhoods i n a manner which meets the a s p i r a t i o n s of neighborhood r e s i d e n t s and the community a t l a r g e . (6) To d e l i v e r the program i n an e f f e c t i v e manner. 50 G u i d e l i n e s f o r neighborhood s e l e c t i o n f o r NIP f u n d i n g s t i p u l a t e d t h a t : " (a) The a r e a be p r e d o m i n a n t l y r e s i d e n t i a l i n l a n d use, (b) a s i g n i f i c a n t p r o p o r t i o n of the h o u s i n g s t o c k be i n need of r e h a b i l i t a t i o n ; (c) The a r e a be i n h a b i t e d by m a i n l y low and moderate income p e o p l e ; (d) There be d e f i c i e n c i e s i n neighborhood a m e n i t i e s ; (e) The a r e a be p o t e n t i a l l y s t a b l e i n terms of l a n d use and d e n s i t i e s . In s p e c i f i c terms, the r e q u i r e m e n t s f o r neighborhood s e l e c t i o n were: (a) More than 25% of r e s i d e n t i a l u n i t s be i n need of r e h a b i l i t a t i o n (as d e f i n e d by the r e q u i r e m e n t s of the RRAP program). (b) D e f i c i e n c y or d e t e r i o r a t i o n i n a t l e a s t one of the f o l l o w i n g c a t e g o r i e s : (1) Neighborhood sewer and water s e r v i c e . (2) P a v i n g l i g h t i n g and o t h e r l o c a l u t i l i t i e s . (3) Non r e s i d e n t i a l b u i l d i n g s , s t r u c t u r e s and uses. (4) P u b l i c r e c r e a t i o n f a c i l i t i e s i n d o o r and outdoor (5) P u b l i c open space. (6) P u b l i c s o c i a l f a c i l i t i e s such as community c e n t r e s or l i b r a r i e s . (c) The mean household income of the NIP a r e a r e s i d e n t be below the average household income of the m u n i c i p a l i t y . (d) No i n d i c a t i o n s of major c o n s t r u c t i o n or redevelopment p l a n s which w i l l cause changes i n l a n d use of the a r e a . 51 In e n a c t i n g the NIP program, P a r l i a m e n t e s t a b l i s h e d a l i m i t of 300 m i l l i o n d o l l a r s and an e x p i r y date of March 31, 1978. The 200 m i l l i o n d o l l a r g r a n t t o t a l was d i v i d e d i n t o e q u a l a n n u a l a l l o c a t i o n s and s u b d i v i d e d i n t o p r o v i n c i a l a l l o c a t i o n s a c c o r d i n g t o a f o r m u l a which took i n t o account e s t i m a t e d need. The NIP program p r o v i d e d f o r 50% or 25% c o n t r i b u t i o n s on e l i g i b l e e x p e n d i t u r e s depending on t h e i r n a t u r e or purpose. Investments such as s o c i a l / r e c r e a t i o n a l f a c i l i t i e s and l a n d i n t e n d e d f o r development of " s o c i a l h o u s i n g " ( i e . h o u s i n g f o r low and moderate income f a m i l i e s ) r e c e i v e d g r a n t s e q u a l t o 50 per c e n t of c o s t from CMHC. M u n i c i p a l development s e r v i c e s and l a n d f o r n o n - r e s i d e n t i a l use, r e c e i v e d a 25% f e d e r a l g r a n t . P r o v i n c e s p r o v i d e d funds on v a r y i n g b a s e s . Those p r o v i n c e s w i t h the l o w e s t c a p a b i l i t i e s t o p r o v i d e matching monies p a r t i c i p a t e d a t lower r a t e s or not a t a l l . NIP emphasised a s e n s i t i v e approach t o the p h y s i c a l improvement of neighborhoods. The NIP p l a n n i n g p r o c e s s d i d not p r e p a r e an e l a b o r a t e p l a n b e f o r e a c t i o n commenced. I t emphasized a c t i o n a l o n g w i t h p l a n n i n g as a c o n t i n u o u s p r o c e s s . The program r e q u i r e d t h a t r e s i d e n t s be p r o v i d e d w i t h an o p p p o r t u n i t y t o p a r t i c i p a t e i n the p l a n n i n g p r o c e s s . The i n t e n t was: " . . . t o c o n s e r v e and r e h a b i l i t a t e the h o u s i n g s t o c k ( t h r o u g h the companion R e s i d e n t i a l R e h a b i l i t a t i o n A s s i s t a n c e Program) t o add or r e h a b i l i t a t e r e q u i r e d s o c i a l and r e c r e a t i o n a l a m e n i t i e s or m u n i c i p a l s e r v i c e s ; t o remove b l i g h t i n g l a n d use;and t o promote the maintenance of the neighborhood a f t e r the NIP p r o j e c t i s t e r m i n a t e d ( C a r l s o n 1978, p. 2 2 ) . " 52 FOOTNOTES (1) The d e s c r i p t i o n of the RRAP program which i s i n c l u d e d i n t h i s t h e s i s , a p p l i e s t o the program d u r i n g the p e r i o d of time when the d a t a was c o l l e c t e d . S u b s e q u e n t l y , v a r i o u s changes have o c c u r r e d . A summary of the s e new r u l e s a re p r o v i d e d i n Appendix 1 . (2) See Appendix 1. (3) The w r i t e r c o n t a c t e d CMHC and found out t h a t t h e r e i s c u r r e n t l y an e v a l u a t i o n of RRAP i n p r o g r e s s . U n f o r t u n a t e l y , the o f f i c i a l s would not r e l e a s e the o b j e c t i v e s or methodology of the s t u d y . Some u n o f f i c i a l communication s u g g e s t s t h a t i t might be an economic impact s t u d y . (4) The d e f i n i t i o n of r e s i d e n t i a l employed i n the s e l e c t i o n p r o c e s s means t h a t e x i s t i n g b u i l t - u p g r o s s l a n d uses a r e more than 50% r e s i d e n t i a l and t h a t u n s e r v i c e d vacant l a n d i s l e s s than 20% of g r o s s l a n d uses. A neighborhood means an a r e a t h a t i s d e f i n e d by b o u n d a r i e s which r e s p e c t e x i s t i n g g e o g r a p h i c , s o c i a l p h y s i c a l and f u n c t i o n a l f e a t u r e s (CMHC 1975, NIP O p e r a t o r ' s Handbook pp. E-1 and E - 2 ) . 53 CHAPTER 4 THE STUDY AREA AND METHODOLOGY  (4.1) The Study Area The study a r e a i s l o c a t e d i n the K e n s i n g t o n neighborhood of Vancouver, B r i t i s h Columbia. Vancouver i s Canada's t h i r d l a r g e s t c i t y and B r i t i s h Columbia's major urban c e n t r e . In 1981, Vancouver's c i t y p o p u l a t i o n was 414,338. The c i t y c o n t a i n s a v a r i e t y of e t h n i c o r i g i n s , i n c l u d i n g p a r t i c u l a r l y l a r g e segments of Chinese (7.8 per c e n t ) ; I t a l i a n (2.6 per c e n t ) ; German (3.3 per c e n t ) ; S l a v i c (3.3 per c e n t ) ; H i s p a n i c (1.3 per c e n t ) ; I n d o - P a k i s t a n (1.5 per c e n t ) ; as w e l l as B r i t i s h (69.6 per c e n t ) . The p e r - c a p i t a income i n Vancouver i n 1976 was $10,443. The K e n s i n g t o n neighborhood encompasses 21 h e c t a r e s . The a r e a i s t r i a n g u l a r l y shaped i n the e a s t e r n c e n t r a l c o r r i d o r of Vancouver. The area i s bounded on the n o r t h e a s t by Kingsway B o u l e v a r d , on the west by F r a s e r S t r e e t , the e a s t by Nanaimo S t r e e t , and i n the south by F o r t y - F i r s t s t r e e t (see map on next page). The study a r e a extends p a s t the so u t h e r n boundary of K e n s i n g t o n and i n c l u d e s h o u s i n g d a t a up t o 49th S t r e e t . A l l of the boundary roads a r e e x t r e m e l y busy commuter and commercial a r t e r i e s . The s o u t h e r n p o r t i o n c o n s i s t s of r e s i d e n t i a l s t r e e t s . K n i g h t S t r e e t , one of the c i t y ' s d e s i g n a t e d t r u c k r o u t e s , runs n o r t h - s o u t h , s p l i t t i n g the community i n two. However, as busy as K n i g h t S t r e e t may be, i t has not c r e a t e d a p s y c h o l o g i c a l b a r r i e r d i v i d i n g the neighborhood i n t o e a s t and west i n the minds of the r e s i d e n t s (CMHC 1980). 54 FIGURE 2 - THE LOCATION OF THE STUDY NEIGHBORHOOD II I I I I II II l i t ! II 'I M II II II II ! l Q ( 1 3 Q L « ™ Q Q Q Q Q [ | Q Q Q ..rapnnrp \s M \i xi \i i r u 1.1 u ti il I I . ODppDDL IC3.0DQliaQ\ JO0OOL\\L OHSJQQDD'n ""iiBMiauu Ii 55 There were a p p r o x i m a t e l y 33,628 people l i v i n g i n K e n s i n g t o n as of December 1981, and the average income was a p p r o x i m a t e l y $9,000 i n 1976, much below the c i t y ' s a verage. Between 1976 t o 1981, the K e n s i n g t o n neighborhood p o p u l a t i o n i n c r e a s e d by 1% - the same a s . t h e Vancouver c i t y a r e a . Hence, K e n s i n g t o n i s s t a b l e i n terms of p o p u l a t i o n growth. As of 1976, n e a r l y 43 per cent of neighborhood r e s i d e n t s had l i v e d i n K e n s i n g t o n f o r t e n y e a r s or more. The a r e a i s p r i m a r i l y a w o r king c l a s s d i s t r i c t . Twenty t h r e e per cent of the a r e a ' s p o p u l a t i o n i s under the age of 19, as of 1976 compared t o the 24 per c e n t Vancouver average f o r the same age b r a c k e t . K e n s i n g t o n i s not an e t h n i c community, b e i n g made up p r i m a r i l y of w h i t e Anglo-Saxons ( 6 9 % ) . The m i n o r i t y groups a r e r e l a t i v e l y s m a l l , and a r e comprised m a i n l y of Chinese ( 1 1 . 5 % ) , I t a l i a n ( 3 . 4 % ) , I n d o - P a k i s t a n ( 2 . 8 % ) , Portugese ( 3 . 2 % ) , S l a v i c (3.6%) and German ( 4 . 2 % ) . K e n s i n g t o n i s m a i n l y a s i n g l e f a m i l y r e s i d e n t i a l neighborhood. As of 1976 n e a r l y 73% of the a r e a comprised of s i n g l e f a m i l y d w e l l i n g s . Commercial e s t a b l i s h m e n t s account f o r 7 per c e n t and d u p l e x e s or apartments make up 5 per c e n t . The r e s t of the a r e a i s c o m p r i s e d of p a r k s , s e r v i c e s and s c h o o l s . Seventy per cent of l i v i n g u n i t s are owned by t h e i r o c c u p a n t s . One q u a r t e r of the neighborhood's 4500 d w e l l i n g u n i t s were b u i l t b e f o r e 1940 and a r e i n need of r e h a b i l i t a t i o n (CMHC 1980). See T a b l e 3a on the f o l l o w i n g page f o r some c o m p a r a t i v e d a t a . TABLE 3a VANCOUVER KENSINGTON POPULATION MALE FEMALE AGE DISTRIBUTION 0-19 20-44 45-64 65+ MARITATAL STATUS (15 YRS. + OLDER) 48.6 51 .4 1 00.0 24.4 37.8 23.3 14.5 100.0 49.9 50. 1 100.0 22.6 45.6 21.3 10.5 100.0 SINGLE MARRIED OTHER FAMILIES SINGLE PARENT TWO PARENT 32.0 51 .0 17.0 100.0 12.7 87.3 100.0 28.3 58.3 13.4 100.0 13.7 86.3 100.0 TABLE 3a (CONT'D) VANCOUVER KENSINGTON 57 MOTHER TONGUE ENGLISH FRENCH GERMAN ITALIAN CHINESE JAPANESE GREEK INDO-PAKISTAN NETHERLANDIC SCANDINAVIAN PORTUGESE OR SPANISH SLAVIC OTHER SCHOOLING NONE KINDERGARTEN TO GRADE 6 GRADES 7-9 GRADES 10-13 1-2 YEARS UNIVERSITY 3 OR MORE YEARS UNIVERSITY 69.6 1 .5 3.3 2.6 7.8 0.7 0.6 1 .5 0.5 0.8 1 .3 3.3 6.6 1 00.0 2.4 7.2 17.0 49. 1 9.9 4.4 100.0 62.3 0.9 4.2 3.4 11.5 0.8 0.5 2.8 0.5 0.7 3.2 3.6 5.6 1 00.0 3.0 10.4 22.8 50.5 6.6 6.7 100.0 TABLE 3a (CONT'D) VANCOUVER KENSINGTON DWELLINGS OWNED RENTED SINGLE DETACHED APARTMENTS OTHER 46.6 53.4 44. 1 47.2 8.7 100.0 69.5 30.5 72.7 13.3 14.0 100.0 *Source: Vancouver L o c a l A r e a s , C i t y P l a n n i n g Department 1979 59 The commercial a r e a of K e n s i n g t o n i s l o c a t e d on F r a s e r S t r e e t and on Kingsway. There i s a l s o a s m a l l l o c a l shopping a r e a on the c o r n e r of K n i g h t and 33rd S t s . There a r e many o t h e r s m a l l g r o c e r y s t o r e s s c a t t e r e d throughout the community, as w e l l as bakery shops, b u t c h e r s , second hand shops, pawn shops, f u r n i t u r e s t o r e s , f a b r i c and c l o t h i n g shops. K e n s i n g t o n i s s e r v e d by f o u r p a r k s t o t a l l i n g 12 h e c t a r e s . B e f o r e NIP, these p a r k s were i n poor c o n d i t i o n . T h e i r p l a y g r o u n d s were run-down and the t u r f on the p l a y i n g f i e l d was of poor q u a l i t y . The community a l s o has one community s c h o o l , S i r R i c h a r d M c B r i d e , and f o u r annexes. Due t o a l a c k of a community c e n t r e , the c i t y used t o c o n t r a c t out community r e c r e a t i o n a l a c t i v i t i e s t o l o c a l c h u r c h e s and s c h o o l s . A p p r o x i m a t e l y 47% of the neighborhood's s t r e e t s a r e w i t h o u t c u r b s , p a v i n g or s i d e w a l k s . There i s l i t t l e commercial development t a k i n g p l a c e as t h e r e i s l i t t l e a v a i l a b l e l a n d , and the e s t a b l i s h m e n t of l a r g e commercial o p e r a t i o n s does not seem e c o n o m i c a l l y v i a b l e i n the a r e a . The i m p l e m e n t a t i o n of NIP and RRAP i n K e n s i n g t o n began i n 1978. S i n c e t h a t time $1,052,000 of RRAP money has been spent by two hundred and s i x t y - n i n e households and seventeen l a n d l o r d s . NIP has acc o u n t e d f o r e x p e n d i t u r e s of $2,646,000 i n t h a t t i m e . NIP e x p e n d i t u r e s r e s u l t e d i n the c o n s t r u c t i o n of the K e n s i n g t o n Community C e n t r e , Gray's Park Community House, a s t o r e f r o n t l i b r a r y , as w e l l as i m p r o v i n g Gray's Park b o w l i n g g r e e n s , p l a y g r o u n d s and p a t h s . The NIP investment has g i v e n K e n s i n g t o n Park two new s e l f -60 d r a i n i n g p l a y i n g f i e l d s a t a c o s t of $250,000; improved l a n d s c a p i n g a t Gl e n ' s Park and expanded washrooms a t K i n g c r e s t Park. Other improvements a r e c o s m e t i c i n n a t u r e , i n c l u d i n g $1,050 worth of t r a s h c a n s , a p e d e s t r i a n c r o s s walk a c r o s s K n i g h t S t e e t and s i d e w a l k s . F u r t h e r m o r e , a l l f i v e s c h o o l s have had t h e i r grounds improved and i n some c a s e s c r e a t i v e p l a y a r e a s c r e a t e d . The breakdown of the NIP and RRAP c o s t s a r e g i v e n i n Table 4 and 5 below: 61 Ta b l e 4 NIP E x p e n d i t u r e s CMHC PROVINCE MUNICIPALITY TOTAL Pa r k s 341,500 170,750 170,750 683,000 S c h o o l s 75,000 37,500 37,500 150,000 P h y s i c a l S t r e e t s 25,000 12,500 62,500 100,000 Other 801,500 40,750 40,750 163,000 Fac i 1 i t i e s 470,000 235,000 235,000 940,000 Cont ingency 177,000 88,500 88,500 354,000 A d m i n i s t r a t i o n P l a n n i n g I m p lementation 25,740 12,870 12,870 51,480 TOTAL 1,298,020 649,010 699,01 2,646,040 *Source: CMHC, The Impact of t h e NIP Program i n B r i t i s h Columbia T a b l e 5 RRAP E x p e n d i t u r e s Homeowners L a n d l o r d s Year A p p l i c a t i o n s Amount Year A p p l i c a t i o n s Amount 1 978 1 1 1 $350,146 1 978 4 $64,225 1979 78 $265,281 1 979 7 $97,612 1 980 41 $130,837 1 980 6 $15,555 1981 39 $128,173 1981 0 $0.0 T o t a l 269 $874,437 T o t a l 117 $177,392 *Source: Vancouver C i t y P l a n n i n g Department 62 (4.2) THE DATA The d a t a base used i n t h i s a n a l y s i s was c o l l e c t e d from the f i l e s of the B r i t i s h Columbia Assessment A u t h o r i t y , the c o r p o r a t i o n c h a r g e d w i t h d e t e r m i n i n g the v a l u e s throughout the p r o v i n c e each y e a r . The da t a i n c l u d e s d e t a i l e d i n f o r m a t i o n on v i r t u a l l y e v e r y s i n g l e f a m i l y d w e l l i n g u n i t i n the K e n s i n g t o n neighborhood. T h i s e n t a i l s s p e c i f i c a t i o n s on s t r u c t u r a l c h a r a c t e r i s t i c s , improvements t o the u n i t , as w e l l as i t s z o n i n g r e s t r i c t i o n s , l o c a t i o n , and a c t u a l arm's l e n g t h t r a n s a c t i o n p r i c e s . T h i s d a t a has been supplemented by i n f o r m a t i o n from the C i t y of Vancouver's P l a n n i n g O f f i c e , d e s c r i b i n g RRAP a c t i v i t i e s d u r i n g the study p e r i o d . The i n f o r m a t i o n i n c l u d e s the l o c a t i o n of d w e l l i n g u n i t s t h a t r e c e i v e d RRAP f u n d i n g , the amount of the f u n d i n g and i t s c o m p o s i t i o n ( g r a n t v e r s u s l o a n ) . A d d i t i o n a l i n f o r m a t i o n r e g a r d i n g the dat e of a p p l i c a t i o n f o r government a s s i s t a n c e and the c o m p l e t i o n d a t e of the r e h a b i l i t a t i o n was a l s o p r o v i d e d . Taken t o g e t h e r , t h i s p r o v i d e s a r e a s o n a b l y complete p i c t u r e of the p r o p e r t i e s , t h e i r exposure t o government i n t e r v e n t i o n , and t h e i r t r a n s a c t i o n h i s t o r i e s . T h i s d a t a has been coded i n t o 26 v a r i a b l e s . I n t a b l e 6 below a d e s c r i p t i o n of each v a r i a b l e , i t s name and e x p e c t e d s i g n i s p r o v i d e d . 63 TABLE 6 VARIABLE NAMES, EXPECTED SIGNS, and DEFINITIONS VARIABLE SALEPRICE AGE NROOMS SQFT LOTS PLUMBS FIRE GARAGE NONRS1 FULBASE HARDWOD EXPECTED SIGN CARPET GAS ELECT OIL + + + DEFINITION A c t u a l s a l e s p r i c e Age of the u n i t i n y e a r s Number of rooms Square f e e t of l i v i n g a r e a S i z e of l o t Number of plumbing c o n n e c t i o n s Dummy v a r i a b l e i n d i c a t i n g the e x i s t e n c e of a f i r e p l a c e (1=yes,0=no) Dummy v a r i a b l e i n d i c a t i n g the p resence of a garage (1=yes,0=no) Dummy v a r i a b l e i n d i c a t i n g i f p r o p e r t y was not zoned RS1 (1=yes,0=no) Dummy v a r i a b l e i n d i c a t i n g the presence of a f u l l basement (1=yes,0=no) Dummy v a r i a b l e i n d i c a t i n g whether the f l o o r i s hardwood (1= yes,0= no) Dummy v a r i a b l e i n d i c a t i n g i f t h e f l o o r i s c o v e r e d w i t h w a l l - t o - w a l l c a r p e t i n g (1 =yes,0=no) Dummy v a r i a b l e i n d i c a t i n g e x i s t e n c e of gas h e a t i n g (1=yes,0=no) Dummy v a r i a b l e i n d i c a t i n g e x i s t e n c e of e l e c t r i c h e a t i n g (1=yes,0=no) Dummy v a r i a b l e i n d i c a t i n g p r e s e n ce of o i l h e a t i n g (1=yes,0=no) 64 TABLE 6(CONT'D) VARIABLE NAMES, EXPECTED SIGNS, and DEFINITIONS VARIABLE EXPECTED SIGN DEFINITION RRAPAREA Dummy v a r i a b l e i n d i c a t i n g i f t he house was i n a RRAP neighborhood or not (1=yes,0=no) SCHOOL CEM PARK DIST Dummy v a r i a b l e i n d i c a t i n g l o c a t i o n of s c h o o l on b l o c k (1=yes 0= no) Dummy v a r i a b l e i n d i c a t i n g l o c a t i o n of cemetary on b l o c k (1=yes,0=no) Dummy v a r i a b l e i n d i c a t i n g i f l o c a t i o n of park on b l o c k or b l o c k f a c e (1=yes 0=no) A e r i a l d i s t a n c e from CBD ( i n c e n t i m e t r e s ) MONTH I n d i c a t e s the month of s a l e RRAP1 RRAP2 RRAP3 Dummy v a r i a b l e i n d i c a t i n g whether the h o u s i n g u n i t r e c e i v e d RRAP funds (1=yes,0= n o ) . (1-3) i n d i c a t e s the number of y e a r s between the s a l e of the house and r e c e i p t of RRAP f u n d i n g BEXTER1 BEXTER2 BEXTER3 B l o c k e x t e r n a l i t y . Dummy v a r i a b l e i n d i c a t i n g whether the house was on same b l o c k t h a t r e c e i v e d RRAP f u n d i n g (1=yes,0=no).(1-3) i n d i c a t e s the number of y e a r s between the s a l e of the house and r e c e i p t of RRAP f u n d i n g . 65 TABLE 6(CONT'D) VARIABLE NAMES, EXPECTED SIGNS, and DEFINITIONS VARIABLE EXPECTED SIGN DEFINITION NEXTER1 NEXTER2 NEXTER3 Next-door e x t e r n a l i t y . Dummy v a r i a b l e i n d i c a t i n g whether the house was next door t o a house t h a t r e c e i v e d RRAP f u n d i n g (1=yes,0= no).(1-3) i n d i c a t e s the number of y e a r s between the s a l e of the house and r e c e i p t of RRAP f u n d i n g . RRAPNUM1 RRAPNUM2 RRAPNUM3 RRAPAMT I n d i c a t e s the t o t a l number of houses on the b l o c k which r e c e i v e d RRAP f u n d i n g p r i o r t o the s a l e of the house, ( 1 - 3 ) i n d i c a t e s the number of y e a r s between the s a l e of the house and the r e c e i p t of RRAP f u n d i n g . I n d i c a t e s the t o t a l amount of RRAP funds r e c e i v e d by a r e h a b i l i t a t e d h o u s i n g u n i t . These v a r i a b l e s are t y p i c a l of t h o s e used i n many h o u s i n g p r i c e r e g r e s s i o n s t u d i e s . O v e r a l l , the d a t a a l l o w s an a c c u r a t e d e s c r i p t i o n of the l o c a t i o n and s t r u c t u r a l c h a r a c t e r i s t i c s of each u n i t i n the n e i ghborhood. U n f o r t u n a t e l y , i n f o r m a t i o n r e g a r d i n g the number of bathrooms per u n i t i s m i s s i n g . T h i s v a r i a b l e i s u s u a l l y s i g n i f i c a n t and p o s i t i v e l y r e l a t e d t o p r i c e . In i t s p l a c e , the number of plumbing c o n n e c t i o n s (PLUMBS) i s employed. T h i s v a r i a b l e as w e l l as o t h e r s t r u c t u r a l v a r i a b l e s , such as the number of rooms (NROOMS), the s i z e of the l i v i n g a r e a (SGFT), and the s i z e of the l o t (LOTSIZE), a r e e x p e c t e d t o have- p o s i t i v e e f f e c t s on s a l e p r i c e . V a r i a b l e s , i n d i c a t i n g the e x i s t e n c e of f i r e p l a c e s ( F I R E ) , garages (GARAGE), f u l l basements 66 (FULBASE), gas h e a t i n g (GAS), and w a l l t o w a l l c a r p e t i n g (CARPET) a r e a l s o e x p e c t e d t o be p o s i t i v e and s i g n i f i c a n t l y r e l a t e d t o p r i c e . S t r u c t u r a l v a r i a b l e s such as the age of the u n i t (AGE) the e x i s t e n c e of hardwod f l o o r s (HARDWOD), e l e c t r i c (ELECT) or o i l (OIL) h e a t i n g , and l a c k of a basement (NOBASE), are e x p e c t e d t o have n e g a t i v e e f f e c t s . L o c a t i o n a l v a r i a b l e s , such as p r o x i m i t y t o c e m e t a r i e s (CEM) s h o u l d n e g a t i v e l y a f f e c t p r i c e because of the n e g a t i v e e x t e r n a l i t i e s g e n e r a t e d by a b u r i a l s i t e . Other l o c a t i o n a l v a r i a b l e s , i n d i c a t i n g p r o x i m i t y t o p a r k s (PARK) or s c h o o l s (SCHOOL), s h o u l d p o s i t i v e l y a f f e c t p r i c e because they a r e d e s i r a b l e a s p e c t s of a community. In t h i s s t u d y , d i s t a n c e from the CBD i s ex p e c t e d t o have a p o s i t i v e a f f e c t on p r i c e due t o the n e g a t i v e e x t e r n a l i t i e s w i t h i n the neighborhood as one approaches the c e n t r a l b u s i n e s s d i s t r i c t . One v a r i a b l e s p e c i f i e s the z o n i n g of the p a r c e l of l a n d (NONRS1). T h i s v a r i a b l e s h o u l d a f f e c t p r i c e because the use of a p r o p e r t y d e t e r m i n e s i t s v a l u e . U n f o r t u n a t e l y , i t s magnitude and d i r e c t i o n i s u n c e r t a i n . The v a r i a b l e s used t o t e s t f o r the e x i s t e n c e of government e x t e r n a l i t y e f f e c t s i n c l u d e NEXTER, BEXTER, RRAPNUM, RRAPAREA, RRAP AND RRAPAMT. The v a r i a b l e s q u a n t i f y the e x i s t e n c e of a government e x t e r n a l i t y e f f e c t a t the next-door l e v e l (NEXTER), the b l o c k l e v e l (BEXTER), and the neighborhood l e v e l (RRAPAREA). RRAPNUM, t e s t s f o r a c u m u l a t i v e e x t e r n a l i t y e f f e c t , whereas RRAP and RRAPAMT t e s t f o r the d i r e c t e x t e r n a l i t y e f f e c t s . A b r i e f d i s c u s s i o n of how the s e v a r i a b l e s were c r e a t e d i s p r e s e n t e d below. 67 The NEXTER dummy v a r i a b l e i n d i c a t e s i f a ho u s i n g u n i t was next t o a p r o p e r t y t h a t r e c e i v e d RRAP funds (1=yes,0=no) and was s u b s e q u e n t l y s o l d . NEXTER i s broken down i n t o t h r e e c a t e g o r i e s . The c l a s s i f i c a t o n depends on which year the r e h a b i l i t a t e d h o u s i n g u n i t was improved and the next-d o o r p r o p e r t y s o l d . For example i f a h o u s i n g u n i t r e c e i v e d RRAP funds i n 1978 and a l l the c o n s t r u c t i o n was completed by J u l y 1, 1978, any p r o p e r t y which was next-door and s o l d a f t e r J u l y 1 1978 u n t i l December 31, 1978 i s c l a s s i f i e d as a NEXTER1. I f a p r o p e r t y t h a t was next door t o a RRAP u n i t r e c e i v i n g RRAP funds i n 1978 and s o l d a t any time i n 1979 i t would be c l a s s i f i e d as a NEXTER2. I f a p r o p e r t y t h a t was next door t o a RRAP u n i t was s o l d i n 1980, i t would be c o n s i d e r e d a NEXTER3. T h i s c l a s s i f i c a t i o n system a l l o w s f o r the a n a l y s i s of a time l a g e f f e c t . One might c o n c e i v e t h a t t he e f f e c t s of a r e h a b i l i t a t i o n p r o j e c t i n c r e a s e w i t h t i m e . T h i s breakdown a l l o w s f o r the t e s t i n g of t h i s query. Due t o the i n c o n c l u s i v e n a t u r e of the l i t e r a t u r e r e g a r d i n g e x t e r n a l i t y e f f e c t s , i t i s h y p o t h e s i z e d t h a t NEXTER w i l l be i n s i g n i f i c a n t l y r e l a t e d t o p r i c e . The BEXTER v a r i a b l e i n d i c a t e s t h a t a d w e l l i n g u n i t was on the same b l o c k as a u n i t r e c e i v i n g RRAP f u n d i n g . BEXTER i s a l s o a dummy v a r i a b l e whereby a 1 i n d i c a t e s t h a t a p r o p e r t y was on the same b l o c k as a housi n g u n i t t h a t r e c e i v e d f u n d i n g . A z e r o i n d i c a t e s the o p p o s i t e . T h i s v a r i a b l e i n c o r p o r a t e s i n t o i t s d e f i n i t i o n a l l NEXTER o b s e r v a t i o n s p l u s any o t h e r p r o p e r t i e s t h a t were on the b l o c k and were s o l d . I t i s a l s o c l a s s i f i e d i n t o t h r e e c a t e g o r i e s i n an attempt t o q u a n t i f y t he time l a g e f f e c t . BEXTER i s a l s o b e l i e v e d t o be i n s i g n i f i c a n t l y r e l a t e d 68 t o p r i c e . RRAPNUM i n d i c a t e s the number of u n i t s on the b l o c k t h a t r e c e i v e d RRAP f u n d i n g . A house t h a t s o l d and was on the same b l o c k where t h e r e were two u n i t s t h a t r e c e i v e d RRAP funds w i l l be coded w i t h a 2. I f t h e r e were f o u r u n i t s on the b l o c k t h a t r e c e i v e d f u n d i n g a d w e l l i n g u n i t which s o l d on the b l o c k would be coded w i t h a 4. RRAPNUM, l i k e BEXTER and NEXTER, i s broken down i n t o t ime c a t e g o r i e s t o t a k e i n t o account t h e time l a g e f f e c t . T h i s v a r i a b l e i s a l s o e x p e c t e d t o be i n s i g n i f i c a n t l y r e l a t e d t o p r i c e . RRAPAREA i n d i c a t e s i f the d w e l l i n g u n i t was w i t h i n the a r e a d e s i g n a t e d as a RRAP zone. S i n c e t he d a t a s e t i n c l u d e s o b s e r v a t i o n s f o r h o u s i n g u n i t s o u t s i d e of the d e s i g n a t e d a r e a , t h i s v a r i a b l e a l l o w s the q u a n t i f i c a t i o n of the e f f e c t t h a t a d i f f e r e n c e i n l o c a t i o n c o u l d p r o v i d e . RRAPAREA i s a dummy v a r i a b l e whereby a 1 i n d i c a t e s t h a t i t i s i n the RRAP neighborhood and a z e r o o t h e r w i s e . I t i s ex p e c t e d t h a t the d e s i g n a t i o n of a r e h a b i l i t a t i o n a r e a w i l l not have a s i g n i f i c a n t e f f e c t on p r i c e . RRAP i n d i c a t e s i f a house r e c e i v e d RRAP funds and was s u b s e q u e n t l y s o l d . I t i s a l s o a dummy v a r i a b l e where a 1 i n d i c a t e s t h a t the h o u s i n g u n i t d i d r e c e i v e f u n d i n g and a z e r o i n d i c a t e s o t h e r w i s e . I t i s c l a s s i f i e d i n t o t h r e e c a t e g o r i e s t o q u a n t i f y the time l a g e f f e c t . I t s h o u l d be noted t h a t the RRAP program c o n t a i n s i n c e n t i v e s f o r a household not t o move. I f a hou s e h o l d does r e c e i v e f u n d i n g and then s e l l s the p r o p e r t y the r e m a i n i n g b a l a n c e of the g r a n t ( a f t e r d e d u c t i n g $750.00 per year s i n c e the r e c e i p t of funds) i s im m e d i a t e l y due. Thus we would 6 9 not expect t o f i n d many RRAP u n i t s which e v e n t u a l l y s o l d . In the one thouasand and t h i r t y t h r e e t r a n s a c t i o n s a n a l y z e d i n the dat a t h e r e were o n l y e i g h t of these o b s e r v a t i o n s . RRAPAMT i s the l a s t government e x t e r n a l i t y v a r i a b l e c r e a t e d . T h i s v a r i a b l e q u a n t i f i e s the amount of t o t a l d o l l a r s spent on r e h a b i l i t a t i o n . Once a g a i n due t o t h e s p e c i f i c s of t h e RRAP program t h e r e a re not many o b s e r v a t i o n s f o r t h i s v a r i a b l e . A d d i t i o n a l l y , s i n c e the program tends t o support those h o useholds which a p p l y f o r the f o r g i v a b l e l o a n , t h e r e i s not a g r e a t d e a l of v a r i a n c e on the amount of funds spent on c o n s t r u c t i o n . The maximum amount of funds r e c e i v e d by any u n i t was $4,110.00 w h i l e the minimum was $2,500.00. N o n e t h e l e s s i t i s e x p e c t e d t h a t the amount of funds spent on improvements s h o u l d p o s i t i v e l y a f f e c t the p r i c e of the u n i t s o l d . To summarize, the d a t a s e t employed a l l o w s an a c c u r a t e d e s c r i p t i o n of the p r o p e r t i e s and t h e i r exposure t o the RRAP program. T h i s d a t a p r o v i d e s a v a s t improvement over p r e v i o u s a n a l y s e s . Hence, a more a c c u r a t e d e s c r i p t i o n of the e x t e r n a l i t y e f f e c t i s p o s s i b l e . T h i s i n f o r m a t i o n combined w i t h an improved methodology w i l l add new i n s i g h t t o the e x t e r n a l b e n e f i t s c r e a t e d by r e h a b i l i t a t i o n programs. The methodology i s d i s c u s s e d i n the f o l l o w i n g s e c t i o n . 70 (4.3) The Methodology The l i t e r a t u r e r e v iew i n s e c t i o n 2.3 brought f o r t h the v a l i d i t y of the h y b r i d model of house p r i c e d e t e r m i n a t i o n . T h i s approach i s t h e r e b y implemented. The v a r i a b l e s d e s c r i b e d above ar e combined i n t o a l i n e a r r e g r e s s i o n e q u a t i o n , where the dependent v a r i a b l e (SALEPRICE) i s e x p l a i n e d by the r e m a i n i n g independent v a r i a b l e s . As the data spans t h r e e y e a r s (1978, 1979 and 1980) t h r e e r e g r e s s i o n e q u a t i o n s a r e r u n , one f o r each y e a r . T h i s c r o s s - s e c t i o n a l a n a l y s i s i s employed s i n c e t h e r e t e n d t o be market changes over time due t o demand and s u p p l y f l u c t u a t i o n s . W h i l e s t a n d a r d i z i n g f o r v a r i o u s c h a r a c t e r i s t i c s the p r o p e r d e t e r m i n a t i o n of the e x t e r n a l i t y v a r i a b l e s i s p o s s i b l e . The use of m u l t i v a r i a t e r e g r e s s i o n a n a l y s i s a d j u s t s f o r the d i f f e r e n c e s between the h o u s i n g u n i t s , t o the e x t e n t t h a t the e q u a t i o n s a r e p r o p e r l y s p e c i f i e d . T h i s a l l o w s the comparison of the e x t e r n a l i t y v a r i a b l e s . T h i s methodology does not r e q u i r e the s p e c i f i c a t i o n of a c o n t r o l or t e s t neighborhood and t h u s , the r e s u l t s w i l l be more a c c u r a t e than those o b t a i n e d i n s t u d i e s u s i n g t h a t methodology. F u r t h e r m o r e , s i n c e the d a t a a l l o w s f o r a r e a s o n a b l y p r e c i s e d e s c r i p t i o n of the s t r u c t u r a l , l o c a t i o n a l and e x t e r n a l i t y c h a r a c t e r i s t i c s of each d w e l l i n g u n i t , the q u a n t i f i c a t i o n of the i n t e r v e n t i o n e f f e c t s w i l l be p r o p e r l y s p e c i f i e d - b e t t e r than p r e v i o u s l y p o s s i b l e . The e q u a t i o n employed t a k e s on the form: 71 Y=a+b x +b x +b x +b x +b x +...b x +u 1 1 2 2 3 3 U K 5 5 h O whereby: Y= the s a l e p r i c e of the u n i t i n each a= the c o n s t a n t b= the c o e f f i c i e n t of the independent v a r i a b l e x= the independent v a r i a b l e u= e r r o r term S e c t i o n 2.3 a l s o i n d i c a t e d t h a t the i n t e r p r e t a t i o n of the v a l u e s of the c o e f f i c i e n t s w i l l f o l l o w t h a t of L i t t l e (1976). The v a l u e of the c o e f f i c i e n t s f o r the non e x t e r n a l i t i e s w i l l be o r d i n a l , w i t h a l l o t h e r s b e i n g c a r d i n a l . B e f o r e c o n c l u d i n g , one s h o u l d r e a l i s e the l i m i t a t i o n s of t h i s t e h n i q u e . One major assumption of m u l t i p l e r e g r e s s i o n i s t h a t the v a l u e of the e x p l a n a t o r y v a r i a b l e s a r e independent of each o t h e r . Hence, i f t h e r e i s any r e l a t i o n s h i p between the independent v a r i a b l e s , t h e i r c o e f f i c i e n t s and s i g n i f i c a n c e l e v e l s become d i s t o r t e d . T h i s m e t h o d o l o g i c a l l i m i t a t i o n i s c a l l e d m u l t i c o l l i n e a r i t y . I t i s w i d e l y d i s c u s s e d i n the house p r i c e d e t e r m i n a n t l i t e r a t u r e . In o r d e r t o d e a l w i t h t h i s drawback, t h i s study uses p r i n c i p a l component r e g r e s s i o n a n a l y s i s , as w e l l as o r d i n a r y l e a s t square r e g r e s s i o n . In p r i n c i p a l component a n a l y s i s a new s e t of v a r i a b l e s or components i s c r e a t e d . These new v a r i a b l e s a r e l i n e a r c o m b i n a t i o n s of the o r i g i n a l s e t of v a r i a b l e s . Because the components a r e d e f i n e d so t h a t they a r e o r t h o g o n a l t o each o t h e r , t h e r e i s no c o l l i n e a r i t y problem between the components when they a r e used i n the r e g r e s s i o n a n a l y s i s . When component s c o r e s a r e computed f o r each of the r e t a i n e d components and then 72 they a r e i n s e r t e d on the r i g h t hand s i d e of an o r d i n a r y l e a s t squares e q u a t i o n i n which the dependent v a r i a b l e i s SALEPRICE, a r e s u l t w hich i s u n a f f e c t e d by m u l t i c o l l i n e a r i t y i s produced. Great e f f o r t s have been made a t p r o d u c i n g the most a c c u r a t e r e s u l t s p o s s i b l e . O v e r a l l the d a t a and methodology do a l l o w f o r an a c c u r a t e e x p e r i m e n t . However t h e r e s t i l l remain l i m i t a t i o n s t o t h i s s t u d y . The s o u r c e s of e r r o r a re d i s c u s s e d i n the next s e c t i o n . (4.4) L i m i t a t i o n s and Sources of E r r o r There a r e two major s o u r c e s of l i m i t a t i o n t o t h i s s tudy . The f i r s t problem i s t h a t t h e r e i s a l a c k of da t a on a r e a p r e f e r e n c e i n f o r m a t i o n . I d e a l l y , the socio-demographic i n f o r m a t i o n of the households a t the h o u s i n g u n i t l e v e l s h o u l d be i n c l u d e d . T h i s l a c k of i n f o r m a t i o n may produce some b i a s i n the model employed. However, the r e g r e s s i o n t e s t i s throughout o n l y one neighborhood. T h e r e f o r e the o m i s s i o n of t h i s i n f o r m a t i o n s h o u l d not be d e t r i m e n t a l . The second source of e r r o r l i e s i n the s i t e of the study a r e a . The RRAP r e h a b i l i t a t i o n p r o j e c t t a k e s p l a c e w i t h i n a NIP a r e a . I t was i m p o s s i b l e t o s t a n d a r d i z e f o r the e f f e c t s of NIP. As a r e s u l t , the e m p i r i c a l f i n d i n g s may be b i a s e d due t o p r e v i o u s government e x p e n d i t u r e s on NIP. 73 CHAPTER 5 The R e s u l t s (5.1) I n t r o d u c t i o n T h i s c h a p t e r p r e s e n t s e m p i r i c a l e v i d e n c e r e g a r d i n g the h y p o t h e s i s t h a t t h e r e a re e x t e r n a l b e n e f i t s due t o government i n t e r v e n t i o n i n the form of the Canadian R e s i d e n t i a l R e h a b i l i t a t i o n A s s i s t a n c e Program. S i x s p e c i f i c a t i o n s of house p r i c e e q u a t i o n s over the t h r e e y e a r s of the program have been a n a l y z e d . The e q u a t i o n s t e s t f o r the e x i s t e n c e of d i r e c t and i n d i r e c t e f f e c t s as w e l l as the magnitude and d i r e c t i o n of the h y p o t h e s i z e d e x t e r n a l i t y . In o r d e r t o d e a l w i t h the problem of m u l t i c o l l i n e a r i t y , p r i n c i p a l component a n a l y s i s has been employed. In t h i s c h a p t e r , the r e s u l t s from the o r d i n a r y l e a s t squares t e c h n i q u e , the p r i n c i p a l component a n a l y s i s , and the f a c t o r l o a d i n g m a t r i c e s a re p r e s e n t e d . The c o e f f i c i e n t s of the v a r i a b l e s a n a l y z e d , and t h e i r t - s t a t i s t i c s ( f o r s i g n i f i c a n c e ) a r e p r e s e n t e d . (5.2) A n a l y s i s V i a O r d i n a r y L e a s t Squares The r e s u l t s from the o r d i n a r y l e a s t squares t e c h n i q u e a r e p r o v i d e d i n T a b l e s 7 and 8 below. Due t o the s i m i l a r i t y of the RRAP and RRAPAMT v a r i a b l e s a l t e r n a t e e q u a t i o n s a re run each year w i t h each of the s e v a r i a b l e s i n c l u d e d . Both s p e c i f i c a t i o n s a r e p r e s e n t e d . 74 TABLE 7 1 ORDINARY LEAST SQUARES RESULTS WITH RRAP DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION VARIABLE CONSTANT AGE DIST GARAGE NROOMS PLUMBS SQFT LOTSIZE FULBASE MONTH NONRS1 GAS HARDWOD PARK NEXTER1 NEXTER2 NEXTER3 1978 1979 1980 7268.60 (.6459)* •176.95 (-7.16) 888.9 (2.75) 1533.8 (2. 178) 778.96 (2.149) 743.55 (2.558) 15.510 (7.029) 1 .243 (2.449) 3221 .0 (1 .935) 6004.4 (2.08) •4735.3 (-1.26)* 14603.0 (1.65) 142.84 (-5.49) 2183.6 (2.62) 9.19 (3.23) 2.84 (4.16) 6450.3 (3.50) 773.76 (4.00) •8716.8 (-2.89) 6412.2 (-1.79) 3941.7 (2.64) 3383.9 (.919)* •5002.7 (-.91 )* •261 1 2 • ( . 1877 ) * •435.62 (-2.24) •7541 .5 (-2.33) 6898.10 (2.85) 36. 12 (2.65) 4415.6 (3.56) 86041 (3.87) 8175.4 ( . 1! ) * -22926 (.529)* 10818 ( .317)* 75 TABLE 7 (cont'd) ORDINARY LEAST SQUARES RESULTS WITH RRAP DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION VARIABLE 1978 1979 1980 BEXTER1 2231.1 2393.2 -23620 ( 1 . 1 2 ) * ( 1 . 3 5 ) * ( 1 . 5 7 ) * BEXTER2 219.56 752.59 (.098)* (.0644)* BEXTER3 -3597.1 (-.22)* RRAPNUM1 510.5 -42.3 501.08 ( .28)* (.03)* (.05)* RRAPNUM2 -1643.2 1124.3 -(.6788) * (.12)* RRAPNUM3 -3992.1 (-.17)* RRAP 1 -2437.1 3547.1 1 2994 (-.275)* (.53)* (.25)* RRAP 2 7240.9 1 6838 (.64)* ( 1 . 4 6 ) * RRAP3 19866 (-.38)* RRAPAREA 188.97 1119.9 1 1 683 (.1181)* (.580)* ( .84)* R 2 .602 .384 .213 SAMPLE SIZE 322 385 326 F-STAT 33.01 1 1 . 98 4.04 1 T V a l u e s i n p a r e n t h e s e s and s i g n i f i c a n t a t the 5% l e v e l u n l e s s i n d i c a t e d by *. 76 TABLE 8 1 ORDINARY LEAST SQUARES RESULTS WITH RRAPAMT DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION VARIABLE 1 978 1979 1980 CONSTANT 5412.20 1 1459.0 -15632 (.6660)* ( .89)* - ( . 1 4 2 7 ) * AGE -176.29 -135.98 -427.00 (-7.16) (-5.00) -(2.12) DIST 876.2 (2.16) GARAGE 1548.9 2339.0 (2. 178) (2.81 ) NROOMS 778.96 -7409.0 (2.150) -(2.30) PLUMBS 744.15 6882.90 (2.567) (2.86) SQFT 15.503 1 1 .07 36.27 (7.026) (4.85) (2.68) LOTSIZE 1 .245 3.03 (2.454) (4.38) FULBASE 3190.0 7095.4 (1.966) (3.95) MONTH 763.06 129.6 (3.91) (3.24) NONRS1 5984.1 -10150.8 (2.06) (-2.90) HARDWOD 3820.6 (2.48) PARK 85896 (3.87) NEXTER1 -4726.9 3394.7 8012.1 (-1 .25)* (.920)* (.10)* NEXTER2 -5473.8 -22745 (-.99)* (-.526)* NEXTER3 1 0674 ( .314)* 77 TABLE 8 (CONT'D) ORDINARY LEAST SQUARES RESULTS WITH RRAPAMT DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION VARIABLE 1978 1 979 1980 BEXTER1 2199.0 2021 .2 -23569 ( 1 . 1 1 ) * ( 1 . 1 3 ) * (1 .57)* BEXTER2 459.21 801.51 ( .206)* (.6883)* BEXTER3 -3556.3 (-.22)* RRAPNUM1 516.5 70.5 438. 12 (.28)* (.03)* (.04)* RRAPNUM2 -1964.8 1124.4 (-.8123)* ( . 12)* RRAPNUM3 -4422.9 (-.19)* RRAPAMT -.40970 -.14361 1 .57 (-.38)* (-.12)* (.22)* RRAPAREA 201.36 1054.7 1 1843 (.1262)* (.545)* ( .86)* R 2 .602 .383 .212 SAMPLE SIZE 322 385 326 F-STAT 33.02 1 2.56 4.50 1 T V a l u e s i n p a r e n t h e s e s and s i g n i f i c a n t a t the 5% l e v e l u n l e s s i n d i c a t e d by *. 78 O v e r a l l the c o e f f i c i e n t s and s i g n s of the s t r u c t u r a l and l o c a t i o n a l v a r i a b l e s a r e s i m i l a r t o o t h e r s t u d i e s of house p r i c e d e t e r m i n a n t s (see Mark 1982). T h i s s u p p o r t s the v a l i d i t y of the e q u a t i o n employed and the s i g n i f i c a n c e and d i r e c t i o n of the a s s o c i a t e d c o e f f i c i e n t s . As e x p e c t e d the age v a r i a b l e i s s i g n i f i c a n t and n e g a t i v e l y r e l a t e d t o p r i c e . Other v a r i a b l e s such as GARAGE, PLUMBS, SGFT, LOTSIZE, FULBASE, and MONTH, a r e s i g n i f i c a n t and p o s i t i v e l y r e l a t e d t o p r i c e . However, v a r i a b l e s such as DIST, FIRE, NROOMS, GAS, ELECT, OIL, CARPET, CEM, PARK, and SCHOOL a r e i n s i g n i f i c a n t or i n c o n s i s t e n t l y r e l a t e d t o p r i c e . These i n c o n s i s t e n c i e s c o u l d o c c u r because of s t r u c t u r a l change i n demand over t i m e , or because the c o m p o s i t i o n of the h o u s i n g u n i t s a c t u a l l y s o l d changes from year t o ye a r (Mark 1982). However, t h e s e f l u c t u a t i o n s a r e not a cause f o r b i a s . The low R 2 v a l u e i n 1980 (R 2=.19) i s l e s s than d e s i r a b l e and sug g e s t s t h a t t he house p r i c e e q u a t i o n has not i n c l u d e d a l l the v a r i a b l e s which account f o r the dependent v a r i a b l e SALEPRICE. The ommission of such v a r i a b l e s reduces the e x p l a n a t o r y power of the e q u a t i o n . T h i s may i n d i c a t e a s y s t e m a t i c b i a s which may have an e f f e c t on the r e s u l t s . The r e s u l t s i n d i c a t e t h a t not one of the v a r i a b l e s r e p r e s e n t i n g e i t h e r the d i r e c t or i n d i r e c t e f f e c t s of government s u b s i d i z e d r e h a b i l i t a t i o n a r e s i g n i f i c a n t . T h i s e v i d e n c e tends t o r e f u t e the r a t i o n a l e f o r government s u b s i d i e s f o r r e h a b i l i t a t i o n on the grounds t h a t they b e n e f i t s u r r o u n d i n g p r o p e r t i e s or t h a t a p r o p e r t y i s d i r e c t l y a f f e c t e d . The c o n s i s t e n c y of these r e s u l t s a r e s u r p r i s i n g and may be due to the the i n t e r r e l a t i o n s h i p s of the v a r i a b l e s . T a b l e s 9, 10, 79 and 11, below p r e s e n t a m o d i f i e d view of the i n t e r r e l a t i o n s h i p of the e x t e r n a l i t y v a r i a b l e s and s e l e c t e d s t r u c t u r a l v a r i a b l e s . 1 U s u a l l y a c o r r e l a t i o n c o e f f i c e n t of 0.4 or more i n d i c a t e s m u l t i -c o l l i n e a r i t y problems (Mark 1980). There are a few l a r g e c o r r e l a t i o n c o e f f i c i e n t s , however, most of the c o e f f i c i e n t s a re l e s s than 0.4. Of c o u r s e t h e r e a r e e x c e p t i o n s . The c o r r e l a t i o n between NEXTER1 and BEXTER1 i s q u i t e h i g h i n both 1978 and 1979. Other s t r o n g r e l a t i o n s h i p s e x i s t between BEXTER1 and PARK i n 1980, BEXTER1 and RRAPNUM1 i n 1979 and 1980, and DIST and RRAPAREA i n 1978-1980. 2 The s t r e n g t h of the s e r e l a t i o n s h i p s s u g g e sts t h a t p r i n c i p a l component a n a l y s i s may be of use i n the u n d e r s t a n d i n g of t h e s e e f f e c t s . The r e s u l t s from the a l t e r n a t e method a r e p r e s e n t e d i n the f o l l o w i n g s e c t i o n . TABLE 9 MODIFIED CORRELATION MATRIX FOR THE 1978 GOVERNMENT INTERVENTION VARIABLES NEXTER1 BEXTER1 RRAPNUM1 RRAP 1 RRAPAREA RRAPAMT DIST 1 .0000 .4200 . 11 28 .0758 .0084 .0199 -.0422 1.0000 .4497 -. 1804 -.0200 -.0744 -. 1 432 1.0000 -.081 1 -.0091 -.02,1 3 .041 9 1.0000 -.0284 .451 6 .0423 1 .0000 -.0673 1.0000 .6133 -.0605 NEXTER1 BEXTER1 RRAPNUM1 RRAP1 RRAPAREA RRAPAMT 80 TABLE 10 MODIFIED CORRELATION MATRIX FOR THE 1979 GOVERNMENT INTERVENTION VARIABLES NEXTER1 1 .0000 NEXTER2 -.0190 1 . 0 0 0 0 BEXTER1 .2844 .2153 1 .0000 BEXTER2 .0633 .2809 .2651 1.0000 RRAPNUM1 . 1507 .3284 .5442 .5295 1.0000 RRAPNUM2 -.0932 -.0157 .0209 ..0209 -.0400 1 . 0 0 0 0 RRAPAREA -.0856 -.0572 - .2650 .2037 -.1470 -.0679 RRAP 1 -.0153 -.0102 - .0470 -.0364 .0262 -.0121 RRAP2 -.0088 -.0059 - .0273 -.0201 -.0151 -.0071 RRAPAMT -.0248 -.0166 - .0771 -.0591 -.0427 -.0197 DIST -.1675 -.0558 - .2902 -.1887 -.1605 -.0543 PARK -.0267 -.0178 - .0828 -.0635 -.0458 -.0212 NEXTER1 NEXTER2 BEXTER1 BEXTER2 RRAPNUM1 RRAPNUM2 TABLE 10 (CONT'D) MODIFIED CORRELATION MATRIX FOR THE 1979 GOVERNMENT INTERVENTION VARIABLES 1 .0000 -.0442 1.0000 -.0255 -.0045 1.0000 -.0718 .6406 .2157 1.0000 .5860 -.1061 .0144 -.0928 1.0000 -.0772 -.0458 -.0212 -.0224 -.0634 1.0000 RRAPAREA RRAP1 RRAP2 RRAPAMT DIST PARK RRAPAREA RRAP 1 RRAP2 RRAPAMT DIST PARK 81 TABLE 11 MODIFIED CORRELATION MATRIX FOR THE 1980 GOVERNMENT INTERVENTION VARIABLES NEXTER1 1 . 0 0 0 0 NEXTER2 -.0054 1.0000 NEXTER3 -.0071 -.0123 1.0000 BEXTER1 . 1 440 - . 0 3 7 8 -.0490 1 .0000 BEXTER2 -.0310 .1714 .1 045 .0164 1.0000 BEXTER3 -.0224 . 1495 .2424 . 1 135 .2171 1 .0000 RRAP 1 .0044 .0077 .0100 • - . 0 3 0 8 -.0400 - .0317 RRAP2 -.0063 -.0109 .01 42 -.0437 -.0630 - .0449 RRAP3 -.0044 -.0077 -.0100 - . 0 3 0 8 -.0450 - .0317 RRAPNUM1 -.0131 -.0228 -.0295 .5061 . 1843 .3654 RRAPNUM2 -.0144 . 1926 .2295 .0555 .4407 .4306 RRAPNUM3 -.0055 -.0095 -.0123 -.0378 -.0552 .2436 RRAPAREA -.0238 -.0414 -.0536 -.1653 -.2414 - .1698 RRAPAMT -.0094 -.0164 -.0212 -.0653 -.0855 - .0671 DIST -.0556 .01 37 -.0195 -.1139 .0179 - .1831 PARK -.0111 -.0192 -.0242 .21 56 -.1121 .0788 NEXTER1 NEXTER2 NEXTER3 BEXTER1 BEXTER2 BEXTER3 TABLE 11 (CONT'D) MODIFIED CORRELATION MATRIX FOR THE 1980 GOVERNMENT INTERVENTION VARIABLES RRAP 1 1 .0000 RRAP2 -.0089 1.0000 RRAP 3 -.0063 -.0899 1 . 0 0 0 0 RRAPNUM1 -.0186 -.0264 -.0180 1 . 0 0 0 0 RRAPNUM2 -.0204 -.0289 -.0200 -.0605 1.0000 RRAPNUM3 -.0077 -.0189 -.0770 -.0228 -.0250 1 . 0 0 0 0 RRAPAREA -.0333 -.0478 -.0330 -.0998 -.1093 - .0414 1 .0000 RRAPAMT . 4 8 5 5 -.7156 .3270 -.0394 -.0432 - .0164 - .0715 DIST -.0133 -.1031 .051 2 -.0953 -.0526 - .1713 .4834 PARK -.0157 -.0222 -.0157 .1259 - . 0 5 0 8 - .0192 .0838 RRAP1 RRAP 2 RRAP 3 RRAPNUM1 RRAPNUM2 RRAPNUM3 RRAP AREA 82 TABLE 11 (CONT'D) MODIFIED CORRELATION MATRIX FOR THE 1980 GOVERNMENT INTERVENTION VARIABLES RRAPAMT DIST PARK 1.0000 -.0986 1.0000 -.0332 -.1240 1 .000 RRAPAMT DIST PARK (5.3) ANALYSIS VIA'PRINCIPAL COMPONENT REGRESSION ANALYSIS In p r i n c i p a l component a n a l y s i s the independent v a r i a b l e s from the o r d i n a r y l e a s t squares e q u a t i o n a r e r e a l i g n e d i n t o o r t h o g o n a l v e c t o r s . These v e c t o r s a r e independent of each o t h e r and t h u s f r e e of m u l t i c o l l i n e a r i t y e f f e c t s . There a r e two a n a l y s e s which a re p o s s i b l e w i t h t h e s e components. On the one hand, one c o u l d examine the f a c t o r l o a d i n g m a t r i x and then a n a l y z e the r e s u l t s of each component when i t i s r e g r e s s e d on the dependent v a r i a b l e . T h i s would a l l o w one t o determine which of the o r i g i n a l v a r i a b l e s i s s i g n i f i c a n t . A l t e r n a t e l y , the p r i n c i p a l components can be r e g r e s s e d on the dependent v a r i a b l e and the e f f e c t of t h i s r e g r e s s i o n can be t r a n s f o r m e d back onto the o r i g i n a l independent v a r i a b l e s . For ease of p r e s e n t a t i o n the l a t t e r method i s p r e s e n t e d f i r s t . The f i n a l and more t e c h n i c a l a n a l y s i s f o l l o w s . A major q u e s t i o n i n employing p r i n c i p a l component a n a l y s i s i s the number of components t o r e t a i n f o r the subsequent r e g r e s s i o n a n a l y s i s . One r u l e of thumb i s t o r e t a i n those number of components w i t h e i g e n v a l u e s g r e a t e r than one. A l t e r n a t e l y , one 83 c o u l d r e t a i n t h a t number of components which e x p l a i n up t o 80% of the v a r i a t i o n . In u s i n g the 80% r u l e one i n t e r p r e t a t i o n i s t h a t any number of components which e x p l a i n l e s s than 80% of the v a r i a t i o n w i l l f a i l t o c a p t u r e the u n d e r l y i n g r e l a t i o n s h i p s between the v a r i a b l e s . Any s e t of components e x p l a i n i n g over 80% of the v a r i a t i o n would not s a t i s f a c t o r i l y c i r c u m v e n t the c o l l i n e a r i t y problem. In t h i s study the low R 2 v a l u e s i n the o r d i n a r y l e a s t squares e q u a t i o n make i t more a p p r o p r i a t e t o use the 80% r u l e . Hence, the number of components which e x p l a i n up t o 80% of the v a r i a t i o n have been r e t a i n e d . A d d i t i o n a l l y , i n o r d e r t o o b t a i n the most u n b i a s e d f a c t o r l o a d i n g , a varimax f a c t o r r o t a t i o n has been employed. The r o t a t i o n a l l o w s the v a r i a b l e s t o a l i g n a c c o r d i n g t o t h e i r w e i g h t s , t h u s i m p r o v i n g the a n a l y s i s . T a b l e s 12 and 13 below p r e s e n t the r e s u l t s of the p r i n c i p a l component a n a l y s i s a f t e r t r a n s f o r m a t i o n back onto the o r i g i n a l v a r i a b l e s . In t h i s a n a l y s i s , a l l of the RRAP v a r i a b l e s are i n s i g n i f i c a n t except f o r the RRAPAREA v a r i a b l e i n 1978. 84 TABLE 12 1 PRINCIPAL COMPONENT ANALYSIS RESULTS WITH RRAP DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION VARIABLE 1 978 1 979 1 980 CONSTANT 19002.00 22520.0 23695 (5.420) (5.05) (1 .530) AGE -147.82 -118.78 -219.78 (-9.65) (-8.13) (-2.28) DIST 444.3 (2.57) GARAGE 2218.4 2853.8 (5.498) (5.86) NROOMS 1178.76 3020.8 (10.359) (4.31 ) PLUMBS 1325. 15 2756.40 (14.830) (5.37) SQFT 9.950 6.80 1 7.23 (15.439) (8.15) (4.66) LOTSIZE 1 .36 3.35 (3.70) (6.20) FULBASE 186.8 2457.7 (1.65) (2.49) MONTH 785.36 3084.9 (4.25) (2.84) NONRS1 4856.6 -7710.8 (2.22) (-2.64) HARDWOD 3282.9 (2.83) PARK 62492 (3.30) NEXTER1 -719.9 1884.9 -33531.4 (-.24)* (.77)* (-.47)* NEXTER2 -1252.6 25756 (-.35)* (.913)* NEXTER3 6486 (.231)* 85 TABLE 12 (CONT'D) PRINCIPAL COMPONENT ANALYSIS WITH RRAP DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION VARIABLE 1978 1979 1980 BEXTER1 755.1 752.6 -2855 ( .95)* ( 1 . 1 4 ) * ( .46)* BEXTER2 -889.66 -1436.99 (-1 .04)* ( .303)* BEXTER3 -9342.1 (-1.5)* RRAPNUM1 943.6 545.0 -4923.38 (.72)* (1.45) (-1.12) RRAPNUM2 -2015.2 3281 .3 (-1.179)* ( 1 . 0 5 ) * RRAPNUM3 -17800. 1 -(1.02) RRAP1 1 661.5 -6461.1 -26664 (.195)* (-1 .16) (-1.5)* RRAP2 -6413.8 1 6838 ( .64)* ( 1 . 4 6 ) * RRAP 3 43799 ( .90)* RRAPAREA 1 781.27 1193.4 7440.6 (2.598) ( 1 . 4 5 ) * ( 1 . 2 3 ) * R 2 .580 .362 . 139 SAMPLE SIZE 322 385 326 1 T - v a l u e s i n p a r e n t h e s e s and s i g n i f i c a n t a t the 5% l e v e l u n l e s s i n d i c a t e d by a *. 86 TABLE 13 1 PRINCIPAL COMPONENT ANALYSIS RESULTS WITH RRAPAMT DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION VARIABLE 1978 1979 1980 CONSTANT 19195.00 215106 51058 (5.450) (4.65) (3.070) AGE -146.75 -118.12 -668.59 (-9.65) (-8.36) (-4.56) DIST 433.8 (2.45) GARAGE 2279.5 3109.2 (5.738) (5.77) NROOMS 1178.06 863.87 (10.249) (.98) PLUMBS 1323.05 2851.40 (15.150) (5.69) SQFT 9.937 6.15 1 3.97 (15.445) (7.00) (3.59) LOTSIZE 1 .34 2.91 (3.51) (5.01) FULBASE 3190.8 4466.7 ( 1.966) (3.23) MONTH 810.33 4749.8 (4.41) (4.13) NONRS1 4904.7 -8960.7 (2.62) (-3.02) HARDWOD 4352.9 (3.36) PARK 69387 (3.74) NEXTER1 -816.9 3848.9 -32135.4 (-.22)* ( 1 . 3 5 ) * (-.46)* NEXTER2 -105.66 25756 (-.03)* (.913)* NEXTER3 6486 ( .231)* 87 TABLE 13 (CONT'D) PRINCIPAL COMPONENT ANALYSIS WITH RRAPAMT DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION VARIABLE 1 978 1 979 1980 BEXTER1 726.9 527.2 -2855 (.91 )* (.805)* (.46)* BEXTER2 -934.27 -1436.99 (-1.05)* (.303)* BEXTER3 -9342.1 (-1.5)* RRAPNUM1 915.8 500.8 -4923.38 (.69)* (1 .34)* (-1.12)* RRAPNUM2 -1333.4 2445.6 (-.768)* (.7946)* RRAPNUM3 -10564. 1 (-.610)* RRAPAMT .5457 -1 .03 6.4043 (-.513)* (-.98)* (.061 )* RRAPAREA 1781.27 1193.4 14706.6 (2.598) (1 .45)* (.15)* R 2 .583 .371 .181 SAMPLE SIZE 322 385 326 T v a l u e s i n p a r e n t h e s e s and s i g n i f i c a n t a t the 5% l e v e l u n l e s s i n d i c a t e d by *. 88 The r e s u l t s from the p r i n c i p a l component a n a l y s i s a re s i m i l a r t o those found when o r d i n a r y l e a s t squares a n a l y s i s i s employed. However, the f i n d i n g s do i n d i c a t e t h a t RRAPAREA i s a s i g n i f i c a n t v a r i a b l e . T h i s s u g g e s t s t h a t t h e r e a r e e x t e r n a l e f f e c t s v i a government i n t e r v e n t i o n . I t would be c o n v e n i e n t i f the f a c t o r l o a d i n g m a t r i x o f f e r r e d a second a n a l y s i s of the e f f e c t s of RRAPAREA. U n f o r t u n a t e l y , i t does n o t . The f o l l o w i n g s e c t i o n examines the e q u a t i o n s i n g r e a t e r depth t o p r e c i s e l y d etermine i f an e x t e r n a l i t y e f f e c t e x i s t s . (5.4) A n a l y s i s V i a F a c t o r L o a d i n g M a t r i c e s T h i s s e c t i o n p r e s e n t s a t h i r d a n a l y s i s of the e f f e c t s of the government i n t e r v e n t i o n v a r i a b l e s . The p r e s e n t a t i o n i n t h i s p a r t i s more t e c h n i c a l . T h i s s e c t i o n i s i n c l u d e d t o examine the p r e v i o u s r e s u l t s i n a more s o p h i s t i c a t e d f a s h i o n ; hence the r e s u l t s a re even more p r e c i s e . T h i s s e c t i o n p r e s e n t s the varimax r o t a t e d f a c t o r l o a d i n g m a t r i c e s and the p r i n c i p a l component s c o r e s when they a r e r e g r e s s e d on the dependent v a r i a b l e . As t h e r e a r e s i x house p r i c e e q u a t i o n s , a m a t r i x f o r each e q u a t i o n i s p r e s e n t e d . For each m a t r i x , the c o r r e s p o n d i n g r e g r e s s i o n r e s u l t s f o l l o w . T a b l e 14 below d i s p l a y s the r o t a t e d f a c t o r l o a d i n g m a t r i x f o r 1978 w i t h RRAPAMT d e s c r i b i n g the d i r e c t e f f e c t s of government i n t e r v e n t i o n . The subsequent y e a r s of d a t a f o l l o w . 89 TABLE 14 1978 VARIMAX ROTATED FACTOR LOADING MATRIX RRAPAMT DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION COMP1 COMP2 COMP3 COMP4 COMP5 COMP6 COMP7 COMPi VARIABLE SQFT .72 .07 -.01 -.21 -.02 .02 .28 -.06 NROOMS .72 .05 -.07 .02 -.39 .04 .23 .07 PLUMBS .86 .00 .06 -.04 -.14 -.05 .03 .05 GARAGE .15 .07 -.12 -.69 .08 . 1 1 -.02 .07 DIST .01 .04 .89 .03 .07 .01 .03 .03 LOTSIZE .07 -.05 .01 -.83 -.04 -.08 .17 .10 AGE .64 .02 -.18 .21 -.39 .07 .36 .03 FULBASE .21 .04 .05 -.05 -.88 -.02 -.10 -.06 NONRS1 .25 .01 .08 .01 .07 -.49 .84 -.01 RRAPAREA .02 -.09 .88 .05 -.10 -.03 .09 .09 NEXTER1 .03 .05 .02 .02 -.04 -.005 .03 -.94 BEXTER1 .01 .65 -.15 .00 -.01 -.04 -.10 -.54 RRAPNUM1 .03 .94 .02 -.016 .03 -.001 .02 .02 RRAPAMT .03 -.02 -.04 -.02 .01 .98 -.009 .01 The t a b l e above i n d i c a t e s t h a t component two i s composed m a i n l y of RRAPNUM1 and BEXTER1. Component e i g h t i s composed m a i n l y of NEXTER1 and BEXTER1. U n f o r t u n a t e l y , RRAPAREA i s lo a d e d m a i n l y on component t h r e e which i s the same component t h a t DIST i s l o a d e d o n t o . Hence, i t i s i m p o s s i b l e t o t e l l the e f f e c t s of RRAPAREA a l o n e on SALEPRICE. Table 15 below p r e s e n t s the r e g r e s s i o n r e s u l t s . 90 TABLE 15 1 1978 REGRESSION RESULTS OF THE PRINCIPAL COMPONENTS AGAINST SALEPRICE WITH RRAPAMT DESCRIBING THE DIRECT EFFECT OF GOVERNMENT SUBSIDIZED REHABILITATION COMPONENT # COEFFICIENT T-STAT 1 107870.0 20.06 2 4646.0 0.72* 3 27220.0 3.77 4 -26660.0 3.41 5 16870.0 1.93 6 -432.7 -0.04* 7 -9325.1 -0.90* 8 -15871.0 -1.06* INTERCEPT 53806.0 108.62 R 2 .5839 R 2 ADJUSTED .5732 F-STAT 54.55 1 T s t a t i s t i c s s i g n i f i c a n t a t the 5% l e v e l u n l e s s i n d i c a t e d by *. The f o r e g o i n g t a b l e i n d i c a t e s t h a t components two and e i g h t a r e i n s i g n i f i c a n t . Hence t h e r e i s no e v i d e n c e of any e x t e r n a l i t i e s c r e a t e d by the RRAP program. Component t h r e e , which i s l o a d e d w i t h RRAPAREA, and DIST, i s s i g n i f i c a n t . T h i s i s e x p e c t e d , however i t does not h e l p t o s e p a r a t e out the i n f l u e n c e s of RRAPAREA and DIST. T a b l e s 16 and 17 below p r e s e n t a l t e r n a t e f i n d i n g s , u s i n g RRAP as the i n d i c a t o r of the d i r e c t e f f e c t s of government s u b s i d i e s . 91 TABLE 16 1 978 VARIMAX ROTATED FACTOR LOADING MATRIX WITH RRAP DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION COMP1 COMP2 COMP3 COMP4 COMP5 COMP6 COMP7 COM! VARIABLE SQFT -.72 .07 .10 .21 -.03 -.04 .28 -.06 NROOMS -.71 -.05 .08 .01 -.40 -.02 .24 .07 PLUMBS -.86 .01 - .06 -.04 -. 14 .05 .04 .05 GARAGE -.13 -.07 - .01 .71 -.01 -.02 -.20 -.06 DIST .01 -.04 - .89 .03 .07 .05 .02 .04 LOTSIZE -.08 -.05 .02 .81 -.03 .03 .17 .09 AGE .65 -.01 .18 -.21 -.39 .03 .36 .03 FULBASE .20 .04 - .05 .05 -.88 -.17 -.09 -.06 NONRS1 -.24 .01 .08 .01 .07 -.00 .85 -.01 RAPAREA -.02 -.09 - .88 .05 -.10 .05 .09 .02 NEXTER1 .03 -.05 .21 -.02 -.43 -.01 .03 -.94 BEXTER1 .01 -.65 - .15 .01 -.01 -.02 -.10 -.54 RRAPNUM1 .03 -.94 - .21 -.02 .03 -.00 .02 .02 RRAP .01 .01 - .54 -.01 .02 -.99 -.00 .01 The above t a b l e i n d i c a t e s t h a t component number two i s composed m a i n l y of RRAPNUM1 and BEXTER1, w h i l e component e i g h t i s composed m a i n l y of NEXTER1 and BEXTER1. Once a g a i n RRAPAREA i s l o a d e d m a i n l y on component t h r e e which, i s the same component t h a t DIST i s l o a d e d onto. Hence, i t i s i m p o s s i b l e t o t e l l the e f f e c t s of RRAPAREA a l o n e on SALEPRICE. In t h i s run RRAP l o a d e d almost c o m p l e t e l y a l o n e on component s i x . T h i s a l l o w s f o r an 92 a c c u r a t e t e s t of the d i r e c t e f f e c t s of RRAP s u b s i d i z a t i o n on SALEPRICE. T a b l e 17 below d i s p l a y s the r e g r e s s i o n r e s u l t s . TABLE 17 1 REGRESSION RESULTS OF THE PRINCIPAL COMPONENTS AGAINST SALEPRICE WITH RRAP DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION COMPONENT # COEFFICIENT T-STAT 1 107930.0 20.04 2 4630.4 0.72* 3 -29172.0 -4.08 4 24995.0 3.19 5 13098.0 1.50* 6 -12342.0 -1.30* 7 -10320.0 -1.09* 8 -14635.0 -1.23* INTERCEPT 53806.0 108.63 R 2 .5840 R 2 ADJUSTED .5732 F-STAT 54.56 1 T s t a t i s t i c s s i g n i f i c a n t at the 5% l e v e l u n l e s s i n d i c a t e d by *. The f o r e g o i n g a n a l y s i s i n d i c a t e s t h a t t h e r e a r e n e i t h e r d i r e c t nor i n d i r e c t e f f e c t s on p r o p e r t y v a l u e s due t o the RRAP program. T h i s , s u p p o r t s the p r e v i o u s a n a l y s i s . In or d e r t o i n v e s t i g a t e whether any e x t e r n a l i t i e s a r e c r e a t e d as the program proceeded, 1979 and 1980 d a t a a re a n a l y z e d s i m i l a r l y . T a b l e 18 below p r e s e n t s the f a c t o r r o t a t e d f a c t o r l o a d i n g m a t r i x f o r 1979. TABLE 18 1979 VARIMAX ROTATED FACTOR LOADING MATRIX RRAPAMT DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION COMP1 COMP2 COMP3 COMP4 COMP5 COMP6 COMP7 COM1 VARIABLE SQFT -.01 .64 -.07 -.33 -.02 .87 .01 . 14 NROOMS .03 -.77 -.02 .22 -.06 .08 -.02 .06 GARAGE .01 -.13 .06 .78 -.05 -.05 -.10 .05 DIST .07 .06 -.14 .09 -.04 -.12 .07 .07 BEXTER1 -.55 .01 .85 .04 -.11 -.46 .15 .04 BEXTER2 -.62 -.03 .19 -.08 -.55 .05 .08 .04 NEXTER1 -.02 .04 -.04 -.03 -.07 -.90 -.01 -.01 NEXTER2 -.75 .04 -.11 -.09 -.01 . 1 6 -.12 -.03 RRAPNUM1 -.80 .02 .14 . 1 2 -.02 -.20 .08 .04 RRAPNUM2 .04 -.05 .02 -.01 .93 -.07 .00 .04 MONTH .01 .01 .05 -.02 -.02 -.02 -.04 .02 RRAPAREA .07 -.14 -.85 -.01 -.04 -.02 .02 -.97 HARDWOD .05 .02 .02 -.11 -.02 -.01 .04 .56 LOTSIZE .03 -.08 -.00 -.07 .02 -.04 -.02 -.04 AGE .08 -.00 .07 .74 .05 -.19 -.12 .06 FULBASE -.03 -.80 -.02 -.18 -.01 -.06 .03 -.13 NONRS1 . 02 -.06 -.15 -.09 -.00 .01 -.01 -.03 RRAPAMT .02 .01 .09 .01 -.03 .01 -.96 -.04 94 TABLE 18 (CONT'D) FACTOR LOADING MATRIX FOR 1979 WITH RRAPAMT DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION COMP 9 COMP 10 COMP11 VARIABLE SQFT -.18 .39 .17 NROOMS -.18 .19 .10 GARAGE .05 . 1 3 .01 DIST -.03 -.66 . 1 1 BEXTER1 -.45 .06 .06 BEXTER2 -.07 -.05 .06 NEXTER1 .02 .02 -.02 NEXTER2 -.12 -.11 -.69 RRAPNUM1 -.05 -.03 .07 RRAPNUM2 .02 -.03 .00 MONTH -.00 .02 .05 RRAPAREA . 1 4 .08 .07 HARDWOD -.04 .71 -.93 LOTSIZE .07 .92 -.09 AGE -.06 -.10 .28 FULBASE .18 -.21 -.16 NONRS1 -.92 -- .06 -.04 RRAPAMT .01 .01 .04 The t a b l e above i n d i c a t e s t h a t component one i s composed m a i n l y of BEXTER1, BEXTER2, NEXTER2 and RRAPNUM1. Component t h r e e i s composed m a i n l y of BEXTER1 and RRAPAREA. Component 95 f i v e i s composed m a i n l y of BEXTER 1 , BEXTER2, and RRAPNTJM2. Component seven i s composed m a i n l y of RRAPAMT. The a n a l y s i s of the r e g r e s s i o n of th e s e components on the dependent v a r i a b l e SALEPRICE s h o u l d p r o v i d e a d d i t i o n a l e v i d e n c e of the e x i s t e n c e of e x t e r n a l i t y e f f e c t s . T a b l e 19 below d i s p l a y s t h e s e f i n d i n g s . TABLE 19 1 REGRESSION RESULTS OF THE PRINCIPAL COMPONENTS AGAINST SALEPRICE 1979 DATA, WITH RRAPAMT SPECIFYING THE DIRECT EFFECTS OF GOVERNMENT INTERVENTION COMPONENT # COEFFICIENT T-STAT 1 31771 .0 1 .38* 2 -85440.0 -11.16 3 52809.0 1 .07* 4 -3618. 1 0.33* 5 -7818.2 -0.75* 6 -23198.0 -2.17 7 -21216.0 0.93* 8 -36535.0 -3.18 9 50552.0 4.28 1 0 -5367.9 -0.42* 1 1 -25038.0 -1 .98 INTERCEPT 56144.0 97.60 R 2 R 2 ADJUSTED F-STAT .3718 .3533 20.070 1 T - s t a t i s t i c s i n d i c a t e d s i g n i f i c a n t a t the by * 5% l e v e l u n l e s s u n l e s s 96 The above analysis indicates that there are no relationships between components five and seven and SALEPRICE. This analysis provides more evidence of the lack of effects of government intervention on property values. Tables 20 and 21 examine th i s finding further, this time using RRAP as the variable specifying the direct e f f e c t s . 97 TABLE 20 FACTOR LOADING MATRIX FOR 1979 WITH RRAP DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION COMP1 COMP 2 COMP 3 COMP 4 COMP 5 COMP 6 COMP 7 COMPc" VARIABLE S QFT -.01 .81 . 1 2 -.26 -.02 .07 .01 . 1 1 NROOMS .04 .84 .02 -.14 -.05 .01 -.06 .01 GARAGE .01 .21 . 1 4 -.72 .05 -.18 .09 .02 DIST .08 .07 .83 -.10 -.05 . 1 4 -.15 -.07 BEXTER1 -.54 .01 -.30 -.54 -.08 -.08 .53 .45 BEXTER2 -.62 -.03 -.19 -.11 -.55 .08 -.02 .01 NEXTER1 .03 .08 -.05 .05 .06 .02 .85 -.04 NEXTER2 -.76 .01 .08 .12 -.03 -.09 -.19 -.01 RRAPNUM1 -.79 -.02 -.12 -.14 -.01 -.07 .25 .01 RRAPNUM2 .05 -.05 .03 .02 .92 .01 .04 -.02 MONTH .01 .03 .05 -.017 -.03 -.02 .23 -.20 RRAPAREA .07 . 1 7 .85 .02 -.04 -.01 .00 -.03 HARDWOD .06 -.12 -.15 -.15 -.07 . 1 5 -.79 -.14 LOTSIZE .02 .34 . 1 3 .03 .12 -.26 .22 .28 AGE .08 .07 .07 .76 .05 -.13 .16 -.02 FULBASE -.03 .56 -.08 .25 -.08 .17 -.08 -.37 NONRS1 . 1 7 . 1 1 .18 . 1 1 .01 -.05 -.01 .04 RRAP1 .02 -.03 -.11 -.04 -.04 -.90 -.06 .06 RRAP2 .02 -.02 -.05 .02 -.04 .07 -.08 .91 TABLE 20 (CONT'D) FACTOR LOADING MATRIX FOR 1979 WITH RRAP DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION COMP 9 COMP 10 COMP 11 VARIABLE SQFT -.08 .05 .02 NROOMS -.02 .10 -.03 GARAGE -.07 -.06 -.07 DIST .05 .05 -.06 BEXTER1 .03 .01 -.01 BEXTER2 .01 .08 -.09 NEXTER1 .03 .00 -.00 NEXTER2 -.05 -.10 .05 RRAPNUM1 .04 .05 -.08 RRAPNUM2 -.03 .01 .00 MONTH .97 .03 -.04 RRAPAREA -.01 . 12 -.02 HARDWOD -.10 . 1 5 .80 LOTSIZE .12 -.31 .58 AGE -.05 .06 -.28 FULBASE .10 -.07 -.01 NONRS1 .04 .90 .05 RRAP1 .019 .05 -.05 RRAP 2 -.011 .023 -.04 99 The t a b l e on the p r e v i o u s page i n d i c a t e s t h a t component one i s composed m a i n l y of BEXTER1, BEXTER2, NEXTER2 and RRAPNUM1. Component f i v e i s composed m a i n l y of BEXTER2, and RRAPNUM2. Component s i x i s composed m a i n l y of RRAP1. U n f o r t u n a t e l y t h e r e a r e too m a i n l y s t r u c t u r a l v a r i a b l e s , which are a l s o r e l a t e d t o t h i s component. Hence, the a n a l y s i s of component s i x does not add any new i n f o r m a t i o n . The component s c o r e s a r e p r e s e n t e d i n T a b l e 21 below. TABLE 2 1 1 REGRESSION RESULTS OF THE PRINCIPAL COMPONENTS AGAINST SALEPRICE 1979 DATA, WITH RRAP SPECIFYING THE DIRECT EFFECTS OF GOVERNMENT INTERVENTION COMPONENT # 1 2 3 4 5 6 7 8 9 10 1 1 INTERCEPT R 2 R 2 ADJUSTED F-STAT COEFFICIENT 31849.0 85314.0 -52672.0 2997.6 -7595.2 -9965.4 23629.0 -27050.0 30858.0 -47888.9 14964.0 56144.0 .3718 .3533 20.070 T-STAT 1 .06* 1 1 .07 -5.74 0.30* -0.72* -0.92* 2.17 -2.38 2.66 -4.06 1.18* 97.08 1 T - s t a t i s t i c s s i g n i f i c a n t a t the 5% l e v e l u n l e s s i n d i c a t e d by *. 100 The f o r e g o i n g a n a l y s i s i n d i c a t e s a g a i n t h a t t h e r e are no p o s i t i v e e x t e r n a l i t i e s c r e a t e d . Components one, f i v e and s i x are i n s i g n i f i c a n t l y r e l a t e d t o p r i c e . T h i s tends t o i n d i c a t e t h a t t h e r e a r e no e x t e r n a l e f f e c t s on p r o p e r t y v a l u e s . The 1980 a n a l y s i s f o r the e x i s t e n c e of e x t e r n a l i t i e s appears i n T a b l e s 22, t o 25. F i r s t , the p r e s e n t a t i o n of the f a c t o r l o a d i n g m a t r i c e s , and then the p r e s e n t a t i o n of the r e g r e s s i o n r e s u l t s . TABLE 22 FACTOR LOADING MATRIX FOR 1980 WITH RRAP DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION COMP1 COMP 2 COMP 3 COMP4 COMP5 COMP 6 COMI VARIABLE SQFT -.84 .01 .00 -.07 -.03 .03 .02 NROOMS .87 .09 .03 -.08 -.01 .08 -.04 PLUMBS -.89 .03 -.05 .09 .04 .06 .01 PARK -.02 .08 -.12 .02 .03 -.04 -.01 BEXTER1 .02 .01 -.77 .00 -.20 -.05 .02 BEXTER2 .08 -.72 -.15 -.03 .04 -.13 -.02 BEXTER3 -.03 -.44 -.37 .07 .07 .48 -.34 NEXTER1 .00 .01 .04 .12 -.97 .00 .00 NEXTER2 -.08 -.61 .17 .07 .02 .09 .29 NEXTER3 -.01 -.10 .06 .00 .01 -.00 .91 RRAPNUM1 -.04 -.48 -.89 .01 . 1 1 .03 .03 RRAPNUM2 .05 -.72 .03 .03 -.04 .01 -.33 RRAPNUM3 -.08 .06 .05 -.00 .02 .91 .04 MONTH -.09 -.09 .02 .05 .03 .01 .02 AGE .31 .15 -.61 -.47 .01 .19 -.06 RRAPAREA -.24 .36 .20 .25 .06 -.14 .02 RRAP 1 -.13 .12 .04 -.87 .01 -.06 .02 RRAP 2 -.01 .03 .03 .04 .00 .03 .00 RRAP 3 .05 .06 .02 .01 .01 .01 .00 TABLE 22 (CONT'D) FACTOR LOADING MATRIX FOR 1980 WITH RRAP DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION COMP8 COMP 9 COMP10 COMP VARIABLE SQFT .01 .01 -.00 .02 NROOMS -.10 .05 -.00 -.08 PLUMBS .01 -.06 -.00 .01 PARK -.02 -.04 -.92 -.06 BEXTER1 -.02 .02 .23 .08 BEXTER2 -.03 .03 .17 -.12 BEXTER3 .01 .04 . 1 5 -.40 NEXTER1 .00 .00 .02 .02 NEXTER2 -.02 -.02 .27 -.08 NEXTER3 -.00 .00 -.03 .03 RRAPNUM1 -.00 .00 .03 -.05 RRAPNUM2 -.03 -.05 .03 -.12 RRAPNUM3 .00 .02 .00 -.01 MONTH .05 -.00 -.04 .91 AGE -.24 .24 -.09 -.31 RRAPAREA -.20 -.22 .26 -.13 RRAP1 .04 .09 .04 .08 RRAP 2 .00 .95 .04 -.00 RRAP 3 .94 .00 .01 -.05 103 The above t a b l e i n d i c a t e s t h a t component 2 i s made up p r i m a r i l y of BEXTER2, BEXTER3, NEXTER2, NEXTER3, RRAPNUM1, RRAPNUM2, and RRAPAREA. Component f i v e i s made up p r i m a r i l y of NEXTER1. Component s i x i s made up of BEXTER3, BEXTER2, RRAPNUM3 and RRAPAREA. Component seven i s made up of m a i n l y BEXTER3, NEXTER3 and RRAPNUM2. Component e i g h t i s l o a d e d m a i n l y w i t h RRAP3 and Component n i n e w i t h RRAP2. T a b l e 23 below, shows the r e s u l t s . TABLE 23 1 REGRESSION RESULTS OF THE PRINCIPAL COMPONENTS AGAINST SALEPRICE 1980 DATA, WITH RRAP SPECIFYING THE DIRECT EFFECTS OF GOVERNMENT INTERVENTION COMPONENT # COEFFICIENT T-STAT 1 236890.0 -5.10 2 -47829.0 -0.94* 3 3242.3 0.05* 4 65920.0 1.01* 5 230640.0 1 .29* 6 -71055.0 -1 .02* 7 25410.0 0.35* 8 36151.0 0.49* 9 92221 .0 1 .25* 1 0 196050.0 -2.60 1 1 -80666.0 . 1.05* INTERCEPT 90305.0 22.42 ADJUSTED STAT .1391 .1090 4.61 T - s t a t i s t i c s s i g n i f i c a n t a t the 5% l e v e l u n l e s s i n d i c a t e d by *. 1 04 Once a g a i n the above t a b l e i n d i c a t e s t h a t t h e r e a r e no d i r e c t or i n d i r e c t e f f e c t s o n . p r i c e . T h i s r e f u t e s the e x i s t e n c e of RRAP e x t e r n a l i t i e s i n a h o u s i n g market c o n t e x t . Furthermore i t i m p l i e s t h a t the RRAP program may be not be a b l e t o produce p o s i t i v e e f f e c t s on e x p e c t a t i o n s . A second a n a l y s i s of the 1980 d a t a , t h i s time u s i n g RRAPAMT as the v a r i a b l e d e s c r i b i n g the d i r e c t d f f e c t s of government s u b s i d i z e d r e h a b i l i t a t i o n , i s p r e s e n t e d i n T a b l e s 24 and 25 below. 105 TABLE 24 1 980 VARIMAX ROTATED FACTOR LOADING MATRIX RRAPAMT DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION COMP1 COMP2 COMP 3 COMP 4 COMP 5 COMP 6 COMP' VARIABLE SQFT .85 .03 .01 -.00 .02 .04 .03 NROOMS .92 -.02 .03 -.01 -.05 -.01 -.01 PLUMBS .86 .00 -.07 .03 -.08 -.02 -.04 PARK .01 -.00 -.12 .03 .03 .05 -.02 BEXTER1 -.07 .03 -.77 -.03 .06 -.04 .21 BEXTER2 -.01 -.11 -.09 .23 .16 -.21 -.06 BEXTER3 -.01 -.48 -.43 .26 -.45 -.00 -.06 NEXTER1 -.00 .00 -.04 -.00 -.00 .00 .98 NEXTER2 .02 .05 .03 .92 -.01 .03 -.01 NEXTER3 .01 .98 .06 -.10 .03 .01 -.00 RRAPNUM1 .03 .01 -.90 -.02 -.01 -.00 -.10 RRAPNUM2 -.06 -.48 .00 .02 .03 -.11 .04 RRAPNUM3 .09 .03 .05 -.01 -.92 -.04 .01 MONTH .06 .00 .01 -.06 -.02 .02 -.02 AGE -.14 -.01 -.04 -.04 -.05 .08 -.01 RRAPAREA . 1 7 -.01 .08 . 1 2 .18 -.20 -.03 RRAPAMT .01 .01 .03 .01 .04 .96 -.01 106 TABLE 24 (CONT'D) 1980 VARIMAX ROTATED FACTOR LOADING MATRIX RRAPAMT DESCRIBING THE DIRECT EFFECTS OF GOVERNMENT SUBSIDIZED REHABILITATION COMP8 COMP 9 COMP10 COMP VARIABLE SQFT .00 -.02 .01 .08 NROOMS .00 -.01 -.08 -.13 PLUMBS .01 -.03 -.18 .22 PARK .92 -.06 -.00 -.03 BEXTER1 .24 . 1 1 .07 -.03 BEXTER2 -.25 -.13 .72 -.04 BEXTER3 -.01 -.15 . 1 4 .10 NEXTER1 -.02 .02 -.01 .01 NEXTER2 .04 .09 .02 .03 NEXTER3 .04 .06 -.00 -.04 RRAPNUM1 -.03 -.05 .04 -.02 RRAPNUM2 -.11 -.21 .40 .03 RRAPNUM3 -.00 -.00 -.00 -.07 MONTH .05 -.95 .00 -.03 AGE .03 -.03 .00 -.96 RRAPAREA -.23 -.14 -.79 -.02 RRAPAMT .05 .02 .00 -.07 1 07 Tab l e 24 i n d i c a t e s t h a t Component two i s made m a i n l y of BEXTER2, BEXTER3, NEXTER3, and RRAPNUM2. Component 3 i s made up m a i n l y of BEXTER1, BEXTER3 and RRAPNUM1. Component f o u r i s made up m a i n l y of RRAPNUM1 and RRAPNUM2, and component f i v e i s made up of BEXTER3 and RRAPNUM3. Component 6 i s made up m a i n l y of RRAPAMT wheras component 7 i s made up m a i n l y of BEXTER1 and NEXTER1. T a b l e 25 d i s p l a y s the r e s u l t s . 108 TABLE 25 1 REGRESSION RESULTS OF THE PRINCIPAL COMPONENTS AGAINST SALEPRICE 1980 DATA, WITH RRAP SPECIFYING THE DIRECT EFFECTS OF GOVERNMENT INTERVENTION COMPONENT # COEFFICIENT T-STAT 1 238360.0 5.34 2 -51592.0 -1.05* 3 1524.0 0.02* 4 59396.0 0.93* 5 224020.0 1.27* 6 -27923.0 -0.40* 7 -4340.7 0.06* 8 191110.0 2.61 9 -111020.0 -1.49* 10 125920.0 1.05* 11 316190.0 4.03 INTERCEPT 90305.0 22.81 R 2 .1814 R 2 ADJUSTED .1527 F-STAT 6.32 1 T - s t a t i s t i c s s i g n i f i c a n t a t the 5% l e v e l u n l e s s i n d i c a t e d by a *. The above i n d i c a t e s t h a t not one e x t e r n a l i t y component produced p o s i t i v e e f f e c t s on p r o p e r t y v a l u e s . Hence, t h e r e i s no e v i d e n c e t h a t government i n t e r v e n t i o n c r e a t e s e x t e r n a l i t y e f f e c t s t o s u r r o u n d i n g p r o p e r t y v a l u e s . In summary, t h i s s e c t i o n i n d i c a t e s t h a t t h e r e i s no e v i d e n c e t o s u p p o r t the h y p o t h e s i s t h a t the RRAP program c r e a t e s p o s i t i v e e f f e c t s on p r o p e r t y v a l u e s . I t i s u n f o r t u n a t e t h a t i t was 109 i m p o s s i b l e t o s e p a r a t e out the e f f e c t s of RRAPAREA from DIST on SALEPRICE. Hence, a p e r f e c t t e s t f o r t h i s e f f e c t i s s t i l l unperformed. The i m p l i c a t i o n s of thes e f i n d i n g s , i n p a r t i c u l a r w i t h r e g a r d t o the e f f e c t s of the RRAP program orv neighborhood change, i s d i s c u s s e d i n the f o l l o w i n g c h a p t e r . 1 10 FOOTNOTES (1) A f t e r p e r u s a l of the e n t i r e c o r r e l a t i o n m a t r i x , i t appeared t h a t t h e r e were no o t h e r s i g n i f i c a n t r e l a t i o n s h i p s except PARK and DIST. (2) In 1978 RRAPAREA became s i g n i f i c a n t when DIST was taken out of the r e g r e s s i o n e q u a t i o n . In 1980, BEXTER1 became s i g n i f i c a n t when PARK was ta k e n out of the r e g r e s s i o n e q u a t i o n . 111 CHAPTER 6 SUMMARY AND CONCLUSION  (6.1) The I m p l i c a t i o n s (a) Lack of D i r e c t E f f e c t The e m p i r i c a l r e s u l t s suggest t h a t t h e r e i s no r e l a t i o n s h i p between the presence or amount of RRAP s u b s i d i z e d g r a n t s or l o a n s and h o u s i n g p r i c e s . T h i s i n d i c a t e s t h a t the market appears not t o v a l u e any improvements c r e a t e d by CMHC's RRAP program. T h i s i m p l i e s t h a t the o n l y v a l u e of the RRAP program i s the d i r e c t v a l u e of the improved h o u s i n g c o n d i t i o n t o the r e c i p i e n t . T h i s f u r t h e r i m p l i e s t h a t the RRAP program does not n e c e s s a r i l y improve p r o p e r t y v a l u e s , may not improve c o n f i d e n c e w i t h i n a neighborhood and thus may not be a c o n t r i b u t o r towards neighborhood change. T h i s f i n d i n g i s u n f o r t u n a t e because i t i m p l i e s t h a t t h e r e a re no measurable p o s i t i v e economic e f f e c t s s t i m u l a t e d by government i n t e r v e n t i o n . There a r e a t l e a s t t h r e e p o s s i b l e reasons f o r t h i s e f f e c t . The f i r s t p o s s i b i l i t y i s t h a t the q u a l i t y of the r e p a i r s p r o v i d e d by RRAP f u n d i n g i s inadequate t o p o s i t i v e l y a f f e c t p r o p e r t y v a l u e s . The p r i o r e v a l u a t i o n s of RRAP i n d i c a t e t h a t a s i g n i f i c a n t m i n o r i t y of RRAP c l i e n t s a r e d i s p l e a s e d w i t h the q u a l i t y of the r e p a i r s . These e f f e c t s (which were not e x p l a i n e d ) c o u l d have been c r e a t e d because of the s i z e of the l o a n s and g r a n t a v a i l a b i l i t y f o r r e h a b i l i t a t i o n and the c o m p e t i t i v e b i d d i n g p r o c e s s t h a t i s employed t o choose the c o n t r a c t o r . S i n c e r e h a b i l i t a t i o n work i s u s u a l l y done by the lo w e s t b i d d e r the p r o b a b i l i t y of poor r e p a i r s i s i n c r e a s e d . Rostum (1977) of the Program E v a l u a t i o n U n i t (CMHC) s t a t e d : 1 12 " A l s o based on recommendations by Branch O f f i c e S t a f f i t i s suggested here t h a t e m p i r i c a l study of the i n s p e c t i o n and b i d d i n g p r o c e d u r e s of RRAP i s needed i n o r d e r t o d e t e r m i n e t h e i r e f f e c t i v e n e s s w i t h r e s p e c t t o c o n t r o l on q u a l i t y and e n s u r i n g c o m p e t i t v e p r i c e s (p. 5 0 ) . " A second i n t e r p r e t a t i o n i s t h a t many of the r e p a i r s were o n l y p a r t i a l and hence d i d not c r e a t e any p o s i t i v e e f f e c t s . The p r e v i o u s r e p o r t s on RRAP suggest t h a t most of the r e c i p i e n t s of RRAP f u n d i n g a r e low income, e l d e r l y homeowners who a p p l y m a i n l y t o r e c e i v e the f o r g i v a b l e l o a n . I f the amount of the f o r g i v a b l e l o a n does not a l l o w f o r enough r e h a b i l i t a t i o n , t h i s f a c t o r c o u l d be a s i g n i f i c a n t reason f o r the l i m i t e d e f f e c t on p r i c e s . In a 1979 e v a l u a t i o n of RRAP - the S o c i a l P o l i c y R esearch A s s o c i a t e s s t a t e d : "Homeowner c l i e n t r e p o r t s suggest t h a t a s i g n i f i c a n t m i n o r i t y of r e p a i r s a r e p o o r l y done and t h a t r e h a b i l i t a t i o n i s o f t e n v e r y p a r t i a l . (Major r e p a i r s a r e o f t e n p r e v e n t e d by the upper l i m i t on the f o r g i v a b l e l o a n , or because the c l i e n t ( o f t e n an e l d e r l y person) i s u n w i l l i n g or unable t o a r r a n g e a l a r g e r l o a n ) . . . ... Homeowner c l i e n t s ' main s u g g e s t i o n f o r i m p r o v i n g the program i n v o l v e d c o n t r a c t o r s ( o b t a i n i n g b e t t e r q u a l i t y and more dependable work); i n s p e c t o r s ( o b t a i n i n g b e t t e r i n i t i a l and ongoing i n s p e c t i o n s , and a i d i n g c l i e n t s w i t h r e j e c t i o n of 1 1 3 shoddy w o r k ) , and completeness of r e h a b i l i t a t i o n (many homeowner c l i e n t s i n d i c a t e d t h a t a l a r g e r f o r g i v a b l e l o a n was r e q u i r e d t o a c h i e v e a more complete r e h a b i l i t a t i o n ) (p. i i i ) . " Perhaps i t i s the type of r e p a i r s under RRAP which f a i l t o a c h i e v e s i g n i f i c a n t r e s u l t s . Varady (see page 3 of t h i s t h e s i s ) s u g g e s t s t h a t v i s i b l e improvements s h o u l d c r e a t e p o s i t i v e s p i l l o v e r e f f e c t s ; the r e p a i r s under RRAP are m a i n l y s t r u c t u r a l and n o n - v i s i b l e . Perhaps i t i s the n a t u r e of these r e p a i r s which i s r e s t r i c t i n g the s p i l l o v e r a f f e c t of t h i s r e h a b i l i t a t i o n program. 1 The above t h r e e hypotheses p r o v i d e r a t i o n a l e s of why RRAP d i d not have any e x t e r n a l or d i r e c t e f f e c t . T h i s study cannot determine which i f any of the s e i n t e r p r e t a t i o n s i s c o r r e c t - the o n l y d e f i n i t i v e c o n c l u s i o n i s t h a t no measurable e x t e r n a l i t y e f f e c t was c r e a t e d . The i m p l i c a t i o n s of t h e s e f i n d i n g s i s t h a t h o u s i n g r e h a b i l i t a t i o n programs t h a t a r e s i m i l a r t o CMHC's RRAP s h o u l d not be e x p e c t e d t o c r e a t e any p o s i t i v e neighborhood i m p a c t s . The f i n d i n g s suggest t h a t s i m i l a r r e h a b i l i t a t i o n programs s h o u l d be w a r r a n t e d by the improved h o u s i n g c o n d i t i o n s of the r e c i p i e n t and not the improved ' s o c i e t a l ' impact. (B) Lack Of I n d i r e c t E f f e c t The e m p i r i c a l t e s t i n g f o r the i n d i r e c t e f f e c t s a ttempted t o q u a n t i f y p r e c i s e l y the e x i s t e n c e of and the magnitude of any s p i l l o v e r e f f e c t s c r e a t e d by the RRAP program. The d e t e r m i n a t i o n of e x t e r n a l i t i e s was t o be used as a t e s t t o see i f the RRAP program c o u l d c o n t r i b u t e towards p o s i t i v e 1 1 4 neighborhood change. The e m p i r i c a l f i n d i n g s i n d i c a t e t h a t t h e r e a r e no measurable e x t e r n a l i t i e s c r e a t e d by the RRAP Program. T h i s does not r e f u t e the n u l l h y p o t h e s i s : 'The i m p l e m e n t a t i i o n of RRAP i n the K e n s i n g t o n n eighborhood d i d not c r e a t e p o s i t i v e e x t e r n a l i t i e s on s u r r o u n d i n g p r o p e r t y v a l u e s ' These r e s u l t s i n d i c a t e t h a t the improvement of one n e i g h b o r ' s p r o p e r t y does not i n c r e a s e the v a l u e of a n o t h e r ' s . Hence t h i s r a t i o n a l e f o r government i n t e r v e n t i o n i n t o h o u s i n g markets i s u n s u p p o r t e d . 2 These f i n d i n g s i n d i c a t e t h a t t h e r e a re no e x t e r n a l b e n e f i t s t o n e i g h b o r s or neighborhoods from an i n d i v i d u a l ' s p a r t i c i p a t i o n i n t h i s form of r e h a b i l i t a t i o n program. 3 In a g e n e r a l c o n t e x t , t h e s e f i n d i n g s i n d i c a t e t h a t government r e h a b i l i t a t i o n programs t h a t a r e s i m i l a r t o CMHC's RRAP may not reduce the degree of u n c e r t a i n t y among c u r r e n t and p r o s p e c t i v e homeowners and hence do not c r e a t e p o s i t i v e s p i l l o v e r e f f e c t s on p r o p e r t y v a l u e s . The d e c i s i o n t o implement a r e h a b i l i t a t i o n p r o j e c t u s i n g g r a n t s or low i n t e r s t r a t e l o a n s s h o u l d be based on the i n d i v i d u a l b e n e f i t s c r e a t e d by thes e t r a n s f e r s - not any s o c i e t a l or neighborhood i m p a c t s . The e v i d e n c e of t h i s r e p o r t s u g g e s t s t h a t r e h a b i l i t a t i o n programs t h a t a r e s i m i l a r t o CMHC's RRAP Program s h o u l d not be i n t e r p r e t e d as f a c t o r s c r e a t i n g p o s i t i v e neighborhood change, (c) Temporary Neighborhood E f f e c t The r e s u l t s i n d i c a t e t h a t RRAPAREA, the v a r i a b l e which s p e c i f i e d K e n s i n g t o n as a r e h a b i l i t a t i o n a r e a , had a p o s i t i v e 1 15 a f f e c t on p r i c e . However, t h i s e f f e c t d i m i n i s h e d i n subsequent y e a r s of the program. There a r e two hypotheses why t h i s might have o c c u r r e d . The f i r s t i n t e r p r e t a t i o n i s t h a t t h i s e f f e c t i n d i c a t e s t h a t the market's i n i t i a l response t o the i m p l i m e n t a t i o n of RRAP was p o s i t i v e , however th e s e e x p e c t a t i o n s d i s a p p e a r e d a f t e r the program was i n o p e r a t i o n . T h i s e f f e c t c o u l d have a r i s e n because of the poor r e s u l t s of the a c t u a l r e h a b i l i t a t i o n work done (see p a r t A of t h i s s e c t i o n ) , or because t h e r e was a reduced amount of e n t h u s i a s m r e g a r d i n g the program's s u c c e s s p o t e n t i a l . The p r e v i o u s e v a l u a t i o n s of RRAP suggest t h a t t h e r e were some m a r k e t i n g problems. Perhaps the l a c k of promotion a l l o w e d r e s i d e n t ' s e x p e c t a t i o n s t o f a l l . A second h y p o t h e s i s i s t h a t i t was not RRAP but NIP t h a t c r e a t e d the neighborhood e x t e r n a l i t y e f f e c t . T h i s would imply t h a t h o u s i n g r e h a b i l i t a t i o n p o l i c i e s do not improve p r o p e r t y v a l u e s or neighborhoods a t a l l and t h a t i t i s the improvement of the neighborhood i n f r a s t r u c t u r e which c r e a t e s the p o s i t i v e e f f e c t s , and i n d i c a t e s t h a t t o improve neighborhoods, programs s i m i l a r t o NIP s h o u l d be implemented; t o improve the h o u s i n g s t o c k one s h o u l d implement programs s i m i l a r t o RRAP. The l i m i t a t i o n s of t h i s s t u d y make i t u n c l e a r which of the t h r e e hypotheses i s c o r r e c t . However, the f i n d i n g s from the p r e v i o u s s e c t i o n s would r e f u t e c l a i m s of an e x t e r n a l i t y e f f e c t c r e a t e d by the h o u s i n g r e h a b i l i t a t i o n s t r a t e g y . T h i s would support the p o s s i b l e importance of NIP i n the c r e a t i o n of a neighborhood e x t e r n a l i t y e f f e c t . Mayer (1981) d e t e r m i n e d e m p i r i c a l l y t h a t the improvement of 1 1 6 neighborhoods' s i d e w a l k s and the r e d u c t i o n of n o i s e p o s i t i v e l y a f f e c t e d l a n d l o r d s ' d e c i s i o n t o i n v e s t . T h i s s u b s t a n t i a t e s the above i n t e r p r e t a t i o n . T h i s s u g g e s t s t o p o l i c y a n a l y s t s t h a t they must c a r e f u l l y d e f i n e t h e i r r e h a b i l i t i o n o b j e c t i v e s and then d e c i d e on the r e h a b i l i t a t i o n s t r a t e g y they w i s h t o use. (6.2) Recommended Areas For F u t u r e Research The a n a l y s i s p r e s e n t e d a l l o w s us t o c o n f i d e n t l y s t a t e t h a t government s u b s i d i z e d RRAP does not c r e a t e any d i r e c t or i n d i r e c t ( e x t e r n a l ) e f f e c t s on p r o p e r t y v a l u e s - of c o u r s e t h e s e f i n d i n g s must be tempered by the p a r t i c u l a r program a n a l y z e d . In t h i s r e s p e c t t h e r e a r e f o u r f a c t o r s which must be r e s e a r c h e d b e f o r e an a b s o l u t e c o n c l u s i o n can be made. They a r e : (a) The e f f e c t t h a t the q u a l i t y of the r e h a b i l i t a t i o n r e p a i r s can have on p r o p e r t y v a l u e s ; (b) The e f f e c t t h a t p r o p e r m a r k e t i n g of r e h a b i l i t a t i o n p r o j e c t s can have on p r o p e r t y v a l u e s ; (c) The impact t h a t v a r i o u s t y p e s of r e p a i r s can have on p r o p e r t y v a l u e s ; (d) The e f f e c t t h a t i n f r a s t r u c t u r e programs have on p r o p e r t y v a l u e s ; (e) The e f f e c t of RRAP on r e i n v e s t m e n t p a t t e r n s . These study a r e a s a r e d i s c u s s e d below. At the time of the w r i t i n g of t h i s t h e s i s new RRAP g u i d e l i n e s on income e l i g i b i l i t y and s i z e of f o r g i v a b l e l o a n s a r e b e i n g implemented. A d d i t i o n a l l y , the c u r r e n t r e c e s s i o n has i n c r e a s e d the s u p p l y of many w e l l t r a i n e d c o n t r a c t o r s who a r e i n t e r e s t e d i n p e r f o r m i n g RRAP r e p a i r s . These r e c e n t developments may have some impacts on the e f f e c t of t h i s r e h a b i l i t a t i o n program. W i t h the s e changes i n mind, i t i s recommended t h a t new r e s e a r c h on RRAP be c a r r i e d out t o determine i f any e x t e r n a l i t y e f f e c t s a r e c r e a t e d . I t i s recommended t h a t t h e s e f a c t o r s be i n v e s t i g a t e d , 1 1 7 u s i n g a methodology s i m i l a r t o t h a t employed i n t h i s t h e s i s . The RRAP program as i t s t a n d s now and as i t was a t the time of the s t u d y , has never promoted the f a c t t h a t r e h a b i l i t a t i o n w i l l improve neighborhoods. The p r o m o t i o n a l o b j e c t i v e has always been t o i n c r e a s e p a r t i c i p a t i o n i n the program. I t i s recommended t h a t a study i n v e s t i g a t i n g the e f f e c t s of neighborhood improvement pr o m o t i o n be u n d e r t a k e n . T h i s study i s im p o r t a n t f o r p o l i c y a n a l y s t s u n i v e r s a l l y , as the c r e a t i o n of e x p e c t a t i o n s and neighborhood change i s l a r g e l y a p s y c h o l o g i c a l r e a c t i o n . As s t a t e d e a r l i e r the e f f e c t of prop e r m a r k e t i n g and a d v e r t i s i n g o b j e c t i v e s has been l a r g e l y o v e r l o o k e d . R e h a b i l i t a t i o n p o l i c i e s may have neighborhood impacts depending on the type of r e p a i r s a l l o w e d . The RRAP program a l l o w s f o r m a i n l y s t r u c t u r a l and n e c e s s a r y r e p a i r s . Perhaps i f more a e s t h e t i c a l l y v i s i b l e r e p a i r s were i n i t i a t e d , p o s i t i v e e f f e c t s on p r o p e r t y v a l u e s would be c r e a t e d . T h i s i s another a r e a f o r f u t u r e r e s e a r c h . The a n a l y s i s of RRAP i n t h i s study does not take i n t o account any measure of induced e x p e n d i t u r e s or improvements and i n d i g e n o u s r e i n v e s t m e n t . T h i s l i m i t a t i o n s u g g e s t s a n o t h e r a r e a f o r r e s e a r c h . Hence, i t i s recommended t h a t an e m p i r i c a l a n a l y s i s of the r e i n v e s t m e n t e f f e c t s of the program be un d e r t a k e n . F i n a l l y the t e s t of the e f f e c t of h o u s i n g r e h a b i l i t a t i o n program s h o u l d be s e p e r a t e d from the t e s t i n g of the neighborhood i n f r a s t r u c t u r e program. A major l i m i t a t i o n of t h i s r e s e a r c h i s the e f f e c t of NIP i n the s t u d y a r e a . I t i s recommended t h a t a s i m i l a r a n a l y s i s as be performed i n a non-NIP a r e a t o a s c e r t a i n 1 18 the NIP a s p e c t s of the NIP/RRAP i n t e r a c t i o n , d i s c o v e r e d i n t h i s s t u d y . 1 19 FOOTNOTES (1) I t s h o u l d be noted t h a t many s t r u c t u r a l v a r i a b l e s d i d not come i n t o s i g n i f i c a n c e i n the r e g r e s s i o n e q u a t i o n . (2) See John Weicher's quote page 9. (3) See P a t r i c i a H a r r i s ' s quote page 9. 1 20 SELECTED REFERENCES A h l b r a n d t , Roger J r . and P a u l C. B i g s b y , Neighborhood  C e n t r a l i z a t i o n Theory and P r a c t i c e , ( L e x i n g t o n , M a s s a c h u s s e t s : L e x i n g t o n Books, 1975). 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Mark, Jonathan H., and M i c h a e l A. G o l d b e r g , "The Impacts of Zoning on Housing V a l u e s " , (Vancouver: Department of Urban Land Economics, U n i v e r s i t y of B r i t i s h C olumbia, 1982). Mark, Jonathan H., "An E m p i r i c a l E x a m i n a t i o n of The S t a b i l i t y of Housing P r i c e E q u a t i o n s Over Time", Working Paper No. 899, (Vancouver: Department of Urban Land Economics, U n i v e r s i t y of B r i t i s h Columbia, November 1982). Mark, Jonathan H. and G. C a m p b e l l . , " M u l t i p l e R e g r e s s i o n A n a l y s i s and Mass Assessment: A Review of the I s s u e s " , L i n c o l n I n s t i t u t e of l a n d P o l i c y , ( F o r t h coming 1983). Maser, S., W. , R i k e r and R. R o s s e t t , "The E f f e c t s of Zoning and E x t e r n a l i t i e s on the P r i c e of Land: An E m p i r i c a l A n a l y s i s of Monroe County, New York", J o u r n a l of Law and Economics, 20, 1 ( A p r i l , 1977): 111-132. Mayer, N e i l S., " R e h a b i l i t a t i o n D e c i s i o n s i n R e n t a l Housing: An E m p i r i c a l A n a l y s i s " , J o u r n a l of Urban Economics, 10, 1 (1981): 76-94. McKeen, C h r i s t i n e , I n n o v a t i v e S t r a t e g i e s f o r the Renewal of  O l d e r Neighborhoods, (Winnipeg: U n i v e r s i t y of Winnipeg 1977) . Mendelsohn, R o b e r t , " E m p i r i c a l E v i d e n c e on Home Improvements" J o u r n a l of Urban Economics, 4, 4 (1977): 459-468. M i n i s t r y of S t a t e f o r Urban A f f a i r s , The Changing Canadian Inner  C i t y , (Ottawa, 1975). Moore, P.W., "Zoning and Neighborhood Change i n the Annex i n T o r o n t o " , (Ph.D. D i s s e r t a t i o n , U n i v e r s i t y of Toronto 1978). Munch, P., "An Economic A n a l y s i s of Eminent Domain", J o u r n a l of  P o l i t i c s and Economics, 84, 3 (1976): 473-497. Muth, R i c h a r d F., "The R a t i o n a l e f o r Government I n t e r v e n t i o n i n H o u s i n g " , Housing i n the S e v e n t i e s , Working P a p e r s , (Washington, D.C: Department of Housing and Urban Development, 1976): 192-201 . Muth, R i c h a r d F., C i t i e s and H o u s i n g , ( C h i c a g o : U n i v e r s i t y of C h i c a g o P r e s s , 1969). Muth, R i c h a r d F., H. Wehrner, John Weicher and I r v i n g W e l f e l d , P e r s p e c t i v e on Housing and Urban Renewal, (New York: P r a e g e r P u b l i s h i n g Co., 1974). 1 25 Nourse, Hugh 0., "A R a t i o n a l e For Government I n t e r v e n t i o n i n Housing: The E x t e r n a l B e n e f i t of Good Ho u s i n g , P a r t i c u l a r l y With Respect t o Neighborhood P r o p e r t y V a l u e s " , Housing i n the  S e v e n t i e s Working P a p e r s , (Washington D.C: U.S. Department of Housing and Urban Development, 1976). Nourse Hugh 0., "The E f f e c t of P u b l i c Housing on P r o p e r t y V a l u e s i n S t . L o u i s " , Land Economics, 39 (1963): 433-441. Pedone, C a r l a I . , The Neighborhood Housing S e r v i c e s Program: An  Assessment of I t s Impact on T a r g e t Neighborhoods, (Cambridge: Urban Systems Research and E n g i n e e r i n g I n c . , 1981). Pedone, C a r l a I . , P a t r i c i a M. Remch and C a r l E. Case, The  Urban Homesteading Program: An Assessment of I t s Impact on  D e m o n s t r a t i o n Neighborhoods V o l . 5, F i n a l R e p o r t , E v a l u a t i o n of  the Urban Homesteading D e m o n s t r a t i o n Program, (Cambridge: Urban Systems Research and E n g i n e e r i n g I n c . , 1980). P h i l l i p s , Robyn Swain., "A Note on the D e t e r m i n a n t s of R e s i d e n t i a l S u c c e s s i o n " , J o u r n a l of Urban Economics 9, 1 (1981): 49-55. R a n d a l l , J.N. "The C o s t s and B e n e f i t s of Improving O l d e r H o u s ing" Urban S t u d i e s , 13, 3 ( O c t o b e r , 1976): 345-357. R i c h a r d s o n , H a r r y W., J . , V i p o n d , and R., Furbey, "Determinants of Urban House P r i c e s " , Urban S t u d i e s , 11, (1974): 189-199. Rose, A l b e r t , C i t i z e n P a r t i c i p a t i o n i n Urban Renewal ( T o r o n t o : U n i v e r s i t y of T o r o n t o , 1974). Rostum, H u s s e i n , R e s i d e n t i a l R e h a b i l i t a t i o n A s s i s t a n c e Program:  An E v a l u a t i o n of Performance, Program E v a l u a t i o n U n i t , C o r p o r a t e P l a n n i n g D i v i s i o n , (CMHC, T977). Rostum, H u s s e i n , A F o l l o w Up t o the E v a l u a t i o n of the R e s i d e n t i a l R e h a b i l i t a t i o n A s s i s t a n c e Program, Program E v a l u a t i o n U n i t , C o r p o r a t e P l a n n i n g D i v i s i o n , (CMHC, 1978). Rothenberg, Jerome, Economic E v a l u a t i o n of Urban Renewal, (Washington D.C: The B r o o k i n g s I n s t i t u t i o n , 1 970). Rothenberg, Jerome, "A R a t i o n a l e For Government I n t e r v e n t i o n i n H o u s i n g : The E x t e r n a l i t i e s G enerated by Good H o u s i n g " , Housing  i n the S e v e n t i e s Working P a p e r s , (Washington D.C: U.S. Department of Housing and Urban Development, 1976): 267-285. S c h a f e r , R o b e r t , "The E f f e c t of BMIR Housing on P r o p e r t y V a l u e s " , Land Economics (1972): 282-286. S c h l i e w i n s k y , Frank G., "A Systems Approach t o Neighborhood Change", ( M.A. T h e s i s , T o r o n t o : U n i v e r s i t y of T o r o n t o , 1975). S l a y t o n , W i l l i a m L., "The O p e r a t i o n and Achievements of the Urban Renewal Program", i n W i l s o n , James Q., Ed., Urban Renewal 126 The Record and the C o n t r o v e r s y , (Cambridge: M.I.T. P r e s s , 1966) . S m a l l , Kenneth, "A Comment on G a s o l i n e P r i c e s and Urban S t r u c t u r e " , J o u r n a l of Urban Economics, 10, (1980): 311-322. S o c i a l P o l i c y Research A s s o c i a t i o n , An E v a l u a t i o n of RRAP, r e p o r t p r e p a r e d f o r Canada Mortgage and Housing C o r p o r a t i o n , ( T o r o n t o , 1 9 7 9 ) . S t e i n l i e b , George and D a v i d L i s t o k i n , " R e h a b i l i t a t i o n v s . Redevelopment: Cost B e n e f i t A n a l y s i s " , Housing i n the S e v e n t i e s  Working P a p e r s , (Wahington D.C: U.S. Department of Housing and Urban Development, 1976): 1033-1103. U.S. Department of Housing and Urban Development P a r t i c i p a t i o n  and B e n e f i t s i n the Urban S e c t i o n & Programs, (Washington D.C: O f f i c e of P o l i c y Development and Re s e a r c h 1981). 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A r c h e r , "Measuring the 1 27 D e t e r m i n a n t s of R e l a t i v e House P r i c e s " , Environment and  P l a n n i n g , 5, (1973): 357-367. W i l l s o n , K a t h e r i n e , Housing R e h a b i l i t a t i o n i n Canada: A Review  of P o l i c y G o a l s and Program Designs"! ( T o r o n t o : U n i v e r s i t y of T o r o n t o , 1 980) . '. W i l s o n James Q., Urban Renewal, The Record and the C o n t r o v e r s y , (Cambridge: M.I.T. P r e s s , 1966). Z e r b s t , Robert H. and Gary W. E l d r e d , "Improving M u l t i p l e R e g r e s s i o n V a l u a t i o n Models U s i n g L o c a t i o n and Housing Q u a l i t y V a r i a b l e s " , A s s e s s o r s J o u r n a l , 12, 1 (March, 1977): 1-15. 1 28 APPENDIX 1 ( 1 ) S i n c e the t e r m i n a t i o n of the NIP program, RRAP funds a r e now r e c e i v e d i n non NIP neighborhoods. For handicapped persons RRAP funds a r e now a v a i l a b l e anywhere i n the c i t y - even non d e s i g n a t e d RRAP neigh b o r h o o d s . (2) The maximum gra n t now o b t a i n a b l e i s $5,000.00. To be e l i g i b l e f o r the g r a n t the a d j u s t e d income used t o have t o be l e s s t h a t $15,500.00 T h i s r a t e has been i n c r e a s e d t o $23,500.00. (3) The g r a n t i s now earned a t a r a t e of $1000 per y e a r . (4) L a n d l o r d s may now r e c e i v e $3,500.00 per s u i t e as g r a n t s . (5) Rent c o n t r o l i s now a p p l i e d f o r a maximum of 5 y e a r s . (6) N o n - p r o f i t c o r p o r a t i o n s now earn the f o r g i v a b l e l o a n a t a r a t e of $700.00 per year per s e l f - c o n t a t i n e d s u i t e , or $350.00 per year per bed u n i t . I f t h e r e a r e more than t h r e e bed u n i t s , the c o r p o r a t i o n earns the l o a n a t $500.00 per y e a r . 

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