Comparing approaches to economic impact analysis of property redevelopment

Abstract

Purpose – The purpose of this paper is to demonstrate the value of computable general equilibrium (CGE) modeling for impact analysis of real estate developments and redevelopments. Design/methodology/approach – Uses a model constructed for Colorado to compare estimates of economic impact of a hypothetical mixed-use development from a CGE model with an input-output (IO) model similar to those commonly used in applied economic impact analysis. Findings – Economic impact estimates of construction activity are demonstrated to be lower when using a CGE approach as compared to an IO approach while impact estimates of continuing operations of a property are demonstrated to be more accurate and potentially higher using a CGE approach. Practical implications – A CGE approach as opposed to an IO approach will be particularly useful for practitioners in particular cases where IO models are ill suited to provide meaningful estimates concerning impact of continuing operations. This is especially likely where commercial tenants are unknown or when the development includes a residential component. Social implications – More complete and accurate assessments of economic impact may positively affect views on property development and redevelopment by the public and government. Originality/value – This paper adds to the existing literature concerning economic impact analysis of real estate and is the first paper in the field, to the authors’ knowledge; to compare estimates from the standard IO approach to those derived using more sophisticated modeling techniques.