An actuarial model of rehabilitation versus new construction of housing

Abstract

Develops actuarial benefit‐cost ratio models of rehabilitation and new dwelling construction to indicate when investment in public housing is best diverted from new construction into rehabilitation of existing dwellings. The data used by the models are based on an empirical study of the mortality of New Zealand housing stock and assumed schedules of no depreciation, straight line depreciation, and diminishing value depreciation of dwelling services. Shows that under conditions of no depreciation it would be impossible to rehabilitate dwellings fully within a justifiable budget at market discount rates. The benefitcost ratios are also overly sensitive to fluctuations in the mortality of the housing stock. Under the more realistic conditions of straight line and diminishing value depreciation, the benefit‐cost ratios are insensitive to fluctuations in mortality and decision making whether to invest in rehabilitation or new construction is viable.

Citation

Johnstone, I.M. (1995), "An actuarial model of rehabilitation versus new construction of housing", Journal of Property Finance, Vol. 6 No. 3, pp. 7-26. https://doi.org/10.1108/09588689510101649