The economic impact of reducing on‐base naval housing

This article develops a methodology for estimating the impact on rents and home prices from a hypothetical reduction of on‐base naval housing from 56 naval bases in the United States. Based on data from the Center for Naval Analyses and the U.S. Census of Housing, and response coefficients from housing economics literature, illustrative estimates are presented of the short‐run and long‐run and long‐run impact of reducing naval housing. Key factors determining the increase in rents and home prices include (1) the increase in demand for housing in the private sector resulting from the reduction of on‐base naval housing, (2) the short‐run and long‐run elasticities of supply of private sector housing with respect to housing prices, and (3) the elasticity of demand to live in a defined housing area with respect to housing prices. We find that the effects on rents and home prices are in most cases small in the short run and negligible in the long run. The median first‐year rent increase in the 53 counties is estimated to be 0.90%, with only 9 of the counties still expected to experience rent increases of as much as 4%. In the long run, the median rent increase is estimated to be only 0.10%. Because the purchase of a home is a long‐term investment, we find that the impact on home prices is negligible, similar to the long‐run impact on rents.