AMAZON STUDENT FAMILY HOUSING

AMAZON STUDENT FAMILY HOUSING
ECONOMIC EVALUATION

TOM BENDER
April 1994

In reviewing the January 1994 "Amazon Family Housing Condition Survey" performed by Endex Engineering Inc., I find that the conclusions I reach from the data in the report is considerably different from the conclusions presented in the study itself.

SUMMARY
Adjustment of some replacement costs, proper crediting the economic and financial value of the existing structural investment in place, use of available and more durable replacement components, and inclusion of the debt service costs for constructing new units creates a remarkably different comparison between extending the life of existing buildings and their replacement with new ones.

The "construction" lifecycle cost of the "New" option would be approximately 62% more than the "Maintenance" option.

The full project cost of the "New" option would be approximately 3.5 times greater than that of the "Maintain" option. The "Maintain" option would be approximately 71% less expensive than the "New" option.

This is a difference of over $111,000/unit over the 50 year period.
This represents a total project saving of over $27 million compared to the
"New" option.

With a 60% larger size of the proposed replacement units factored in, the disparity in costs would be even greater (+30% $194,634/unit) resulting in $38,639,000 total project cost savings.

Including both larger unit size and taxpayer bond subsidy results in an additional cost over the "Maintenance" Option of $208,000 per unit, or a total difference in project cost for 244 units of $50,782,000. Such units would cost 4.7 times as much as the "extended-life" units in the "Maint" Option.

Further savings over those figures may be possible through sweat equity, introduction of other, more durable replacement elements, and other strategies to extend the life of existing components or avoid need for their replacement.

A third option, of relocating some of the "maintained" units on the site, constructing up to 26 more units (co-housing or accessible units) over covered parking and "Commons" facilities, and elimination of some parking through a cooperative vehicle rental could offer additional opportunities for costs savings and maximizing the use potentials of the site. Final details of the "Historical" designation would determine the potentials of this option.

FINANCIAL COSTS OF MAINTAINING VS REPLACEMENT
The EEI analysis appears to not credit the "Maintain" option with the economic and financial value of the existing structural materials, or to allow for component life cycles which in many cases realistically can exceed 50 years. Replacement costs for some elements such as plumbing fixtures appear excessive ($880 to replace a kitchen sink?), while replacements with more durable and less repair-prone components are not factored in in either repair or replacement costs. The wisdom of adding perimeter foundations rather than less expensive, less flood-prone, isolated footings is not evaluated. Asbestos abatement in demolition of existing units is not listed in the new construction option.

Because of the magnitude of its cost impact, a temptation always exists to avoid considering debt service in cost comparisons. This practice of focusing on "construction" costs rather than total project costs misrepresents true project costs, as debt service is a real cost of options that require it, and usually by far the largest single item of initial cost of a project. It is overall project costs, not just "construction" lifecycle costs that are properly compared in a review such as this. Project costs also include site and development (similar here), design fees, financing, sales charges (not applicable here), etc.

The revised "Maintain" option, for example, would cost $44,750 per unit in the 4plexes, vs. $72,451 for the "New" option, - if financing is ignored and we only look at "construction" costs. Including soft costs and financing, however, the real project lifecycle cost of the "New' option jumps to $156,235 per unit (assuming 6.5% financing of initial construction for 30 years). In comparison with that, the "Maintain" option represents a 71% savings! This is an immense difference - $111,485 per unit!

Applying the same savings ratio to the whole project results in a project cost savings of $27,202,000 dollars if the "Maintain" option is chosen.

ADDITIONAL FACTORS
This data from the EEI study compares replacement of existing housing with identical sized units. If, however, the replacement units would be 800 sq.ft. as suggested, or 60% larger, a commensurate increase in both construction and total project cost would occur, making the cost disparity even great.3

Similarly, if the cost to Oregon taxpayers of the "tax-free" bonds is considered, the financing cost of the "New" option increases by 35% 2, and its lifecycle cost to $181,359. The total cost difference per unit then equals $136,609, for a total of $33,333,000 for the project.

ECONOMIC VALUE VS. FINANCIAL VALUE
Conventional economic analysis fails to distinguish between financial costs (and who pays) and the real economic costs of material, energy and human resource creation, consumption, and disposal associated with a project. Financial laws and practices can disguise the true financial and economic costs of a project. For example, laws that permit the issuing of "tax free" bonds hide the fact that every dollar of such bonds issued represents a loss to the citizens of the state of taxes avoided by the purchasers of the bonds. The real financial cost of the bonds is considerably greater than their face rate, only the public unknowingly pays the difference through loss of tax revenues.

Even were the financial costs the same for extended life vs. replacement of the Amazon Housing, the economic costs would be considerably different. In the "Maintain" option, existing investment in site development, foundations, structural framing, insulation, and other elements of the building with long life cycles would not be abandoned or need replacement. No trees would be cut for framing lumber or siding, as would be necessary in the "New" option. Electric boxes and wiring, interior walls and ceilings, etc. would not be thrown away and require resources to replace, nor the landfill impacts of the demolition of the existing buildings incurred. The financial costs of "Maintain" also represent a greater ratio of employment to resource use, a strong argument in its favor when viewed from the standpoint of sustainable economics.

A life cycle cost analysis, such as prepared by EEI, makes clear the immense benefit of durability in all components of building. Emergency repair, maintenance and replacement costs are all avoided or dramatically reduced. Thirty- and 50-year roofs, stainless steel electric services, long-life and quiet exhaust fans, and more durable counter and floor surfaces are easily available. Their lifecycle costs represent considerable savings, especially when revenue financing on an incremental basis is available, as in the case of the "Maintain" option.

THE VALUE OF DURABILITY AND OF RETAINING INVESTED VALUE The value of extending the life of existing structures and emphasizing durability in the construction of new ones is being increasingly recognized today, along with the major role which debt service plays in the life cycle costs of a project. The State of California, in its 1981 Affordable Housing Competition, and the AIA/UIA in their 1993 Sustainable Community Solutions International Competition have both given top awards to entries which demonstrated the vital role which long and debt-free life plays and strategies available to achieve it.

This comparison makes clear the necessity for viewing the full costs of project alternatives, and the major savings possible through understanding of full-costing. Such savings can go a long way towards meeting our needs more effectively and with less drain on resources so our society can move to operation on a sustainable basis. It is time that projects acknowledge and incorporate such full-cost accounting in their decision-making.

Amazon Family Housing provides a unique opportunity to demonstrate the significant savings inherent in making what we have serve us longer and better. Your advocacy of such options is commendable, and I wish you the best of luck in your efforts.