An extended actuarial model of rehabilitation versus new construction of housing

Abstract

Johnstone’s (1995) actuarial benefit‐cost ratio model estimates the maximum justifiable expenditure on rehabilitation of public housing for each age at which rehabilitation takes place. The model estimates correct maximum expenditures when annual maintenance costs over each age interval are proportional to the depreciation of dwelling services. Extends and generalizes the model to include regimes of annual maintenance costs which are not proportional to the depreciation of dwelling services. The maximum justifiable expenditure on rehabilitation increases as discount rates decline. Low discount rates favour rehabilitation over new construction and may also justify demolition and replacement, especially should increases in annual maintenance costs with age be substantial.

Citation

Johnstone, I.M. (1997), "An extended actuarial model of rehabilitation versus new construction of housing", Journal of Property Finance, Vol. 8 No. 2, pp. 126-133. https://doi.org/10.1108/09588689710167825