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Economic Currents

Keep up to date with the latest UHERO news.

Investigating the Effects of Furloughing Public School Teachers on Juvenile Crime in Hawaii

Posted October 1, 2013 | Categories: Hawaii's Economy, Blog

What happens to crime when 180,000 DOE students and all of their teachers are given the day off? When a fiscal crisis led to 17 "Furlough Fridays" during the 2009/2010 school year, we found ourselves in a unique position to find out. While it is tempting to imagine streets being flooded with idle teenagers up to no good, a new UHERO working paper titled "In School and Out of Trouble? Investigating the Effects of Furloughing Public School Teachers on Juvenile Crime in Hawaii" suggests the contrary.

The authors, Randall Akee (an assistant professor at UCLA), Timothy Halliday (an associate professor at UH-Manoa) and Sally Kwak (an economist at the US Congress Joint Committee on Taxation), used juvenile arrest data from the Honolulu Police Department to investigate the effects of this unusual policy on juvenile crime. Using such a policy to test the effects of shortening the school year on crime is an example of what economists call a "natural experiment;" an observational study that allows researchers to ascertain causal relationships without using a randomized trial.

Contrary to what many would have predicted, their results indicate that the furloughs were associated with fewer juvenile assault arrests for assault and drug-related crimes. Over the course of the entire academic year, there were 20 fewer arrests for assault and 15 fewer arrests for drug offenses due to the furloughs. These reductions are larger than effects produced from national studies. It is hard to say exactly why this is but the authors speculate that, since 1 in 5 students in Hawaii are in private schools, the average socioeconomic status of families who do send their children to public schools may be lower than elsewhere which may enhance the ability of school to facilitate rather than prevent crime.

Spatial differences were also identified. Assaults went down more than drug-related crimes in Leeward and Central Oahu, while drug-related crimes were reduced more than assaults in Metro and Windward Oahu. The authors attribute the reduction in crime to two factors. The first is a lack of "concentration" allowing for less opportunity to engage in criminal activity, and the second is possibly increased monitoring by parents that may have happened since parents were told about the furloughs in advance and 13 of the 17 DOE furlough days coincided with furloughs for state employees. The "concentration" effect was more prominent in Leeward and Central Oahu resulting in fewer assaults, while the monitoring effect may have been more prominent in Metropolitan and Windward Oahu where more affluent parents may have been better able to plan ahead to spend the day with their children or to arrange for a paid alternative activity.

It would be flippant to say that school should be canceled as a means of crime prevention, but the overall reduction in crime should encourage decision-makers to think harder about how to minimize crime while school is in session.

---Tim Halliday

READ THE WORKING PAPER


Hawaii's Energy Future

Last week's Asia Pacific Clean Energy Conference has focused the spotlight on Hawaii's energy future. Governor Abercrombie opened the conference with a strong commitment to installing an undersea cable between Oahu and Maui. The Blue Planet foundation unveiled their "Energy Report Card" during a keynote address by Henk Rogers. Meanwhile, recent coverage by NPR discussed switching to natural gas as an alternative to Hawaii's oil dependence. 

The Hawaii Clean Energy Initiative set the vision for the state to move toward renewable and cleaner sources of energy. There are numerous pathways and decision on the best pathway is fraught with debate.

The Governor's comments juxtaposed to strong resistance to the undersea cable suggests that there needs to be on-going discussion of what energy portfolios will likely emerge in separated versus linked islands scenarios - including environmental and economic impacts.

Moreover, there is also concern over the high cost of energy. As many renewable sources are still relatively costly (or difficult to locate) there is also consideration of switching to natural gas as a "bridge fuel." The future price of liquefied natural gas is uncertain and, while it is cleaner burning than oil, there is concern that its full environmental impact is not necessarily an improvement over the status quo.

In addition, environmental groups such as Blue Planet in their "energy report card" bring up concerns about the lack of guiding policy for the transportation sector. Policies that complement transportation as well as electricity have a place in the discussion as well.

UHERO's ongoing research is looking at ways to cost-effectively achieve GHG reduction and meet the state's clean energy goals.

---Makena Coffman


The Unintended Consequences of Affordable Housing Policy

Honolulu City Council Resolution 13-168 would amend the percentages of affordable housing units that developers must provide to receive authorization for housing projects.  Current city policy requires that 10% of a development's units must be affordable for households earning no more than 80% of the HUD median income for Honolulu. Another 10% of units in a development should be affordable for families earning between 80 and 120% of the median income, and 10% for families earning between 120 and 140% of the median income. The resolution proposes that the mix of affordable housing required of developers be reconsidered. The intent is to change the requirements in a way that leads to more affordable housing for those who need it the most.

While requiring developers to set aside a fraction of a project to be sold at below market prices may seem like a reasonable way of dealing with the problem of affordable housing, economic theory and years of experience suggest exactly the opposite. Such requirements, known as inclusionary zoning (IZ), act as a tax on developers with the proceeds used to subsidize housing for gap income households earning between 80 and 140 percent of the median income. But that tax reduces incentives for developers to produce all forms of housing, and will reduce the overall supply of housing units and increase the price of housing.

In 2010, UHERO conducted a comprehensive review of studies that analyzed IZ policies across the United States.1 Approximately 90% of the studies concluded that IZ increases the market price of housing and decreases housing units available in the market. Of the 18 studies that were able to quantify the effect of inclusionary zoning on housing market outcomes, 13 found that IZ policies both increased the market price of housing and decreased housing units available in the market, and three more studies found evidence of at least one of those effects. UHERO’s report concluded that “Inclusionary Zoning policies have failed in other jurisdictions, and are failing on Oahu.” Such policies have not delivered substantial numbers of affordable housing units to households the programs were designed to help.

The undersupply of housing services relative to household formation on Oahu is a chronic problem. While IZ policies are politically appealing, they mistakenly tax housing to encourage more of it! The effect of a tax on the production of any product, housing included, is relatively straightforward. The extra tax imposed by IZ increases the cost to developers and limits the supply of housing provided. Facing the additional cost, developers will build fewer housing units, all else equal. In the worst case scenario, if the expected loss on the affordable units does not allow developers to meet their required rate of return, then projects will never get off the ground. The primary means of insuring the project is viable is to produce more upscale, higher priced homes to offset the loss on the subsidized housing.2 So, the IZ tax not only reduces the overall supply of housing, it also changes the mix of housing by encouraging higher end and more expensive housing developments.

“Low-cost housing is usually produced through a process called filtering where existing housing units drop in cost as their relative quality falls, rather than through construction of new, lower-cost units.” (Feldman, 2002 p. 9) Over time, the existing stock of housing depreciates and declines in quality relative to new amenity rich units. For example, new housing often includes central air-conditioning and energy saving appliances, whereas twenty years ago few housing units would have such amenities. The construction of new housing units also increases the overall supply of housing, which increases the supply of lesser quality units to those with lower incomes as owners of older homes “trade up”. (Feldman 2002, p. 10). Malpezzi and Green (1996, p. 1811) also found that “high-quality new construction is associated with growth in the low-quality stock as well... [T]o the extent that a city makes it easy for any type of housing to be built, it will also enhance the available stock of low-cost housing.” By discouraging construction of market priced housing, IZ reduces filtering and leads to less low-cost housing than without these well-intended policies.

On Oahu IZ policies also miss the cyclical nature of the affordability problem. The figure below shows the maximum affordable mortgage3 for four Honolulu income groups from 1990 to 2012 and median resale prices of single-family homes and condominiums from the Honolulu Board of Realtors.

From 1990 to 1995, at the end of the last Oahu housing cycle, single-family homes remained out of reach of households earning 140% of the HUD median family income (MFI). Yet from 1996 to 2003, households in the 120-140% MFI bracket could afford the median priced home, and all gap income households could afford a median priced condo from 1996 through 2005. From 1992 to 2012, all income groups except the 80% group could afford the median priced condo.

The recent peak in unaffordability occurred in 2007 at the height of the last housing cycle. The declining price of homes through 2009 and the record low mortgage rates since then has once again brought single-family homes within reach of the top gap income group. And, condos are again within reach of all gap income levels. Imposing more costly affordability taxes on developers at this stage of the home building cycle will result in some small increase in the number of new affordable housing units. But, the tax will also accelerate the end of the construction cycle by leading to a more rapid increase in home prices and eventually closing off demand for the higher priced units developers need to build to cover their costs. IZ policies will endanger project viability by squeezing profit margins, especially as other construction costs rise and home prices flatten out. The result is that less housing will be produced than otherwise would be the case.

Reducing or eliminating overly burdensome regulation on development, including inclusionary zoning, will increase affordability of housing for two reasons. First, it will encourage building, increasing the overall stock of housing, which will help hold down the market price of housing. Second, removing IZ will facilitate the natural “filtering” process, with newer units going to higher income households and older depreciating units being increasingly occupied by lower income households. Finally, IZ policy misses the basic fact that affordability problems arise not just due to the high cost of housing. The affordability problem is a dual problem of high prices and low incomes. Just as is done in Federal Housing Assistance programs, affordability could be addressed through housing subsidies that help households purchase or rent housing units.

 ---Carl Bonham

 

Notes

1See Bonham, Burnett, and Kato, “Inclusionary Zoning: Implications for Oahu’s Housing Market”, February 2010.

2Of course, this only works when there is a demand for higher priced units.

3UHERO calculates the Affordable Mortgage as the maximum mortgage a household earning the HUD Median Family Income for Oahu could afford after a 20% down payment and assuming the household spends no more than 30% of its monthly income on the mortgage.

 

References

Bonham, C., Kimberly Burnett, and Andrew Kato. 2012. Inclusionary Zoning: Implications for Oahu’s Housing Market. UHERO Project Report, accessed at http://www.uhero.hawaii.edu/assets/UHEROProjectReport2010-1.pdf.

Feldman, R. 2002. The Affordable Housing Shortage: Considering the Problem, Causes and Solutions. Federal Reserve Bank of Minneapolis. Banking and Policy Working Paper 02-2.

Malpezzi, S. and R. K. Green. 1996. What has Happened to the Bottom of the U.S. Housing Market? Urban Studies. 33(10): 1807-1820.


The Water-Energy-Food Nexus

The water-energy-food nexus is one of the most important and fundamental global environmental issues facing the world today. The US Geological Survey estimates that the United States used 201 billion gallons per day (bgd) of freshwater for thermoelectric power generation and 128 bgd for irrigation in the year 2005. Combined, energy generation and irrigation accounted for roughly 80% of all water withdrawals over that period. At the same time, energy is a key input for the production of freshwater. A 2006 study prepared for the California Energy Commission estimated that the electricity required to process one million gallons of water in a typical urban water system ranges from 4,000 kWh per million gallons in Northern California to 12,700 kWh in Southern California, and water-related energy use comprised over 19% of total energy use in the state. Although the wide range in values suggests that water-related energy use depends on a variety of location-specific factors, the interconnectedness of the resources is clear.

As demand for each of the resources grows, examining tradeoffs will become especially important. For example, biofuels may be developing into a viable alternative to petroleum, but the implications for water resources will be considerable. The UHERO Project Environment team will be working with the Research Institute for Humanity and Nature to develop a framework capable of quantifying such tradeoffs. The project will focus heavily on coastal regions in the Asia-Pacific “Ring of Fire”. For more on economic approaches to water and energy management, visit UHERO’s Project Environment.

---Christopher Wada


Coastal Zone Management in Hawaii

Hawaii has 750 linear miles of coastline that include all of our beaches, an array of cliffs, bays and other features that count among our most treasured natural resources. Development of these resources is a key source of economic growth, but ensuring that this development is carried out in a manner that preserves, protects and (where possible) restores them is important for their long term value.

Since 1975 a permitting system administered by each county has been the primary vehicle for managing development of the coastal zone. To support decision making in the permitting process, The UHERO Project Environment team collaborated with the State Office of planning to review the way benefits provided by the program are evaluated.

Project Environment was asked to identify a set of key ecosystem services to study, selecting the services on the basis of their measurability and expected value. The final list included public access, beach and shoreline protection, marine resources, and scenic and open space. Other important but difficult to measure benefits, discussed but not incorporated in the methodological assessment, include those related to cultural values and practices.

The UHERO team visited various project sites in each of the four counties across the state and concluded that benefits of the permitting process are very site-specific, rendering a statewide assessment via benefit transfer – a valuation method that adjusts estimated values from studies completed in other locations – impractical. Instead, original valuation methods were recommended for each site, depending on the type of ecosystem service protected or enhanced, site characteristics, and the type and number of users, among other things. For example, an encroachment removal and dune restoration project at Charley Young Beach (Kihei, Maui) was estimated to have doubled the usable beach width, while expanding view corridors, reducing erosion, and replenishing sand dunes. Estimating the value of each of those benefits requires different data and methods.

 

 

The final report discusses potential valuation methods for seven case studies throughout Hawaii, and includes a primer on valuation methods, with pros and cons, as well as data requirements for each. For more on economic valuation of environmental services in Hawaii, visit UHERO’s Project Environment.

-- Christopher Wada


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