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Weekly Updates4. ECONOMIC EVALUATION TECHNIQUES
There are three basic techniques that can be used for the economic analysis of urban regeneration and renewal programs. In increasing order of complexity they are: cost-effectiveness analysis; weighted cost-effectiveness analysis (sometimes referred as to cost-utility analysis); and cost-benefit analysis.
Cost-benefit analysis is appropriate for projects whose benefits are measurable in monetary terms and whose output has a market price that is relatively easy to assess (EU, 2002).
Cost-effectiveness analysis and weighted cost-effectiveness analysis can be used for comparing projects whose benefits are not readily measurable in monetary terms (Levin, 1983). The main difference between the techniques is in the measurement of benefits. The choice of technique depends on the nature of the project, time constraints and the information available.
Cost-effectiveness analysis and weighted cost-effectiveness analysis are used to compare alternatives that are equally effective in achieving a stated goal or standard (Needleman 1969; Ruegg and Marshal, 1990; Balchin et al., 1992; Levin, 1993; Fukahori and Kubota, 2003; Kirk et al., 2004). Both analysis concentrate on the minimisation of cost subject to the provision of a given goal or standard. These approaches have focused on the choice between the renovation of old building stock and redevelopment. Several researchers have formulated and refined the mathematical expressions for comparing reconstruction and renovation. Needleman (1969) introduced the basic method with emphasis on the purely financial viewpoint of the agency responsible for housing redevelopment.
Cost-benefit analysis has been widely used to support the decision-making process in urban projects (Tudela et al., 2006). It differs from cost-effectiveness analysis in that benefits are, as far as possible, expressed in monetary terms and hence are directly comparable with one another. Cost-benefit analysis is the methodology best equipped to provide in-depth comprehensive quantification and evaluation of urban regeneration and renewal interventions (Schofield, 1987; Henket, 1990; Stubbs, 1998; Brennan et al., 2001; Morisugi and Ohno, 2003; Johnson, 2006; Gao and Asami, 2007).
Cost benefit analysis provides a consistent basis for comparing alternative investments within sectors and across sectors (Castillo, 1998). In addition, it strives to demonstrate that the project's investment will generate sufficient benefits to offset the cost of the investment and its risk. Cost-benefit analysis can be used from the standpoint of owner-occupant, owner-investor and owner-developer (Ruegg and Marshall, 1990).
There are three types of cost-benefit analysis that can be used to asses the value of investment operations: (i) financial analysis; (ii) economic analysis; and (iii) social analysis (Belli et al. 1997). Financial analysis looks at the project from the perspective of the implementing agency: it identifies the project's net money flow to the implementing entity and assesses the entity's ability to meet its financial obligations and to finance future investments. Economic analysis, by contrast, looks at a project from the perspective of the entire country and measures the effects of the project on the economy as a whole. Social analysis extends the economic analysis to include the redistribution effects. Financial analysis is appropriate for projects whose benefits and costs are measurable in monetary terms and whose output has an assessable market price. Economic analysis is similar in form to financial analysis in that both assess the value of the project.
Urban renewal projects may have many components, some with benefits measurable in monetary terms and some with single or multiples benefits that are not measurable in monetary terms (Schofield, 1987; Rosenfeld and Shohet, 1999; ODPM, 2004; CMHC, 2005). Therefore, the three basic techniques can be used to assess urban regeneration and renewal programs. However, cost-benefit analysis makes it possible to calculate project's Net Present Value (NPV), which provides a better measure of its value, not only for both the implementing agency and the country. Ray (1984) indicates that for projects whose benefits are measurable in monetary terms, the criterion for project acceptability is the expected Net Present Value (NPV). In particular, the criterion requires that the expected NPV (i) must not be negative, and (ii) must be at least as high as those of other mutually exclusive alternatives.
For urban renewal projects, the analyst needs to define the objectives of the analysis and the alternatives to be evaluated, including the without-project alternative.
5. THE SAO PAULO COMMUNITY CASE
The Sao Paulo community is located in the heart Lisbon's downtown area. It is a heterogeneous and varied space characterized by historic building, narrows streets and squares. Sao Paulo community was particularly hard hit by occupancy rates in some buildings, loss of residents, population aging and economic and social problems.
The occupancy rate fell from 82% in 1991 to 55% in 2001 (INEa, 2003). Between 1991 and 2001, the community lost 33% of its residents (INEb, 2003), while 75% of residents were more than 24 years old in 2001 (INEb, 2003). The employment rate was 30% in 2001 and, in the same year, 22% of residents had no education (INEb, 2003). Rented occupation was predominant in 2001 (86%) (INEa, 2003). This situation created a downward spiral of physical decline of the community's built heritage and of social and economic degradation.
Despite the degradation problems, the Sao Paulo community has great appeal and market potential, largely thanks to its strategic location, the historic and architectural heritage, the building assets and the economic activities that justify a regeneration intervention aimed at attracting people and business. The municipality attempted to deal with this problem in 2005 by creating and putting in place a public enterprise responsible for the physical and social regeneration of the Lisbon's downtown area, SRUBP--Sociedade de Reabilitacao da Baixa Pombalina. The intervention of the SRUBP is justified by four main reasons (RSRU, 2004):
* Structural reasons: the loss of functionality due to aging property, the lack of social amenities, and traffic and parking difficulties.
* Economic reasons: the possibility of attracting private investments in building renovation, making capital gains from higher housing rents, creating new business opportunities.
* Social reasons: the possibility of creating employment, social rehabilitation and attracting young families and tenants.
* Cultural reasons: The possibility of intensifying the use of the downtown area during trading hours and extend it into the night, to promote the organization of quality cultural events.
The intervention envisaged by the SRUBP for the Sao Paulo community has been incorporated into the urban planning program for the city of Lisbon (PDML, 2002). The SRUBP is seeking the economic and financial participation of private agents in the rehabilitation of the urban built heritage and the social and economic regeneration of the Sao Paulo Community.
The studied area comprises thirty eight buildings, organized into nine blocks, and 370 housing units (Figure 1). A survey of the state of repair of the built heritage was conducted, along with an inquiry of the households and tenants, as part of this study. The state of repair survey found that 29% of the study area was deemed to be bad or very bad condition (Figures 2 and 3). Of the building stock in the study area, 24% is classified as historic buildings and 13% is classified as building of public interest. Seventy-six percent of the building stock is privately owned. Housing is the predominant occupation (40%) followed by restaurants (19%) and offices (18%). Thirty-two percent of the housing units were vacant (Figure 3).
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Based on the survey, four main areas of intervention for the Sao Paulo community were considered by the SRUBP: (i) rehabilitation of the building assets in order to regain residents; (ii) the upgrading of public spaces including parking, infrastructures, urban furniture, public transport, mobility and traffic signs; (iii) the upgrading and construction of public facilities as an attraction factor; (iv) commercial revitalization and creation of new jobs.
A detailed intervention plan for the studied area was prepared based on the criteria established in the PDML (2002).
6. IDENTIFYING BENEFITS AND COSTS OF THE PROJECT
A major barrier to analysing urban regeneration programs is compiling and presenting the economic information in ways that will help the implementing agency decide if the program would make economic sense.
The economic rationale of public investment decisions as to whether a project should be implemented, or which projects should be selected subject to a given budget constraint, requires identifying and measuring the benefits and costs during the life of the project and calculating the net present value (NPV) of this flow of net benefits.
The choice of economic evaluation tools to assess urban regeneration programs depends on the nature of the intervention in question and on its stated objectives. Cost-benefit analyses of urban renewal projects generally include an assessment of the project benefits compared with the estimated cost of the project. All consequences of the programme need to be identified and measured in monetary terms (Mishan, 1994; Peterson and Larsen, 2006). Therefore, an important step in cost-benefit analysis is the identification and quantification of a project's costs and benefits. Table 1 summarizes the major benefits and cost categories of the project from the perspective of the implementing agency, the SURBC.
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