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Do Housing Rehabs Pay Their Way? 4 4 1 and sales and income tax. The inclusion of these costs and benefits were derived from the literature, primarily from Simons and Sharkey (1997), which focused exclusively on Cleveland, Ohio. Because other cities' tax structures were often quite different, local revenues, tax items and rates were closely evaluated in order to be able to model each one effectively. Neighborhood Effects of Housing Rehab Activity Housing market participants have been Shown to Price the positive effects sof new residential investment in their neighborhoods. These increasedl sales prices are tnanslated into increased property taxes over time. Housing rehabs have been shown to positively impact their ininiediaate environment, thereltmre this positive extertIality justifies the aaddlitiorral stq)port of rehab, activities. In order to determine the indirect property tax benefits of housing rehab activities on adjacent properties, in a related article some of the authors conducted a statistical analysis of the effect of rehabs on nearby sales prices of homes in Cleveland, Ohio (Ding, Simons and Baku, 2000). The authors evaluated about 7,600 residential sales in the City of Cleveland that took place during 1996-1997. In the six years prior to the sales, several hundred new houses and almost a thousand housing rehabs (some private, some by not-for-profit groups) tools place in the city. Using hedonic regression analysis, the housing markets in the city were modeled. Variables in these models include unit characteristics such as lot size, number of rooms and square footage, as well as census tract demographic information. Geographic Information Systems (GIS) were utilized to accurately match housing sales with nearby new housing and rehabs. The statistical models explained just over 60% of the housing sales price, an acceptable level. The results found that close proximity to housing rehabs had a significant and positive e0ect on nearby residential sales prices. More specifically, for each dollar of rehab investnent, adjacent homes sold for $0.13 mare, holding all else constant. 1'lae effect was not detectable moss titan 150 feat from the rehab. It is important to note that the Cleveland market has typical city lots that have frontage between 35 and 40 feet, with lot depths that approximate 120 feet. Und1crstandably, dieCleve-land results are not darectiy generalizable to all mnsailiets: However, the notion that rehabs positively affect nearby property values is supported in theory, and the Cleveland experience provides the only known measurement of this effect. Therefore, in extending the Cleveland study to the current research, adjustments had to be made to application of the positive externality property appreciation factor. The 13 cents was applied for every rehab dollar invested factor in all ten markets. However, the economies of scale finding were not applied, which could be attributed solely to the Cleveland market. Further, the average housing density (lot width and depth) in each market was considered, and where necessary downward adjustments were made to the number J R E R I Vol. 25 No. 4 - 2003 21