The Effects of Environmental Hazards and Regulation on Urban Redevelopment, 1998

Many cities struggle with the problem of brownfields -- vacant or underused industrial sites with environmental contamination caused by chemical compounds and other hazardous substances. Thousands of these sites exist across the Nation. Although Federal law holds past, current, and prospective property owners liable for cleaning up brownfields, contamination -- whether real or suspected -- often deters redevelopment due to increased risks, greater liability, and higher project costs. Environmental contamination can cause costly remediation requirements, project delays, increased loan underwriting costs, higher required reserves, increased legal expenses, and reduced marketability.

To provide insight into the effects of these deterrents, HUD's Office of Policy Development and Research and the U.S. Environmental Protection Agency jointly sponsored The Effects of Environmental Hazards and Regulation on Urban Redevelopment. This report describes how brown-fields impede the revitalization of distressed communities and looks at ways to overcome those impediments.

Researchers surveyed developers, property sellers, lenders, public agencies, environmental consultants, and others. Based on a sample of 48 redevelopment projects in 12 cities, they reached three conclusions.

Environmental issues are never the single critical obstacle to failed development deals. Market factors such as redevelopment costs and potential demand were the primary constraints to a project more often than environmental issues such as remediation costs and liability risks. Environmental issues mattered most on only three occasions: when potential market demand was weak or highly uncertain, when developers or lenders lacked the required expertise to undertake complex deals, and when undeveloped brownfields sites were close to undeveloped, nonpolluted sites.

Among environmental concerns, developers primarily fear immediate environmental costs, rather than liability for future claims. Expected or actual remediation costs posed the most serious environmental barrier to redevelopment, whereas liability concerns were never the sole critical environmental obstacle. Borrowing money for redevelopment sometimes proved difficult, but did not appear to be related to lender fears of cleanup liability.

State and local actions to promote brown-fields redevelopment have the highest payoff when combined with efforts to create viable economic markets around the sites. Therefore, the researchers suggest that States should:

• Establish basic rules that protect public health but allow economic transitions to take place efficiently.

• Create markets by encouraging multiple and concurrent private investment in target areas containing brownfields.

• Provide information by educating relevant players, building networks to encourage information flow, and taking the lead in less urbanized areas.