IDEAS home Printed from https://ideas.repec.org/a/kap/jrefec/v48y2014i3p546-560.html
   My bibliography  Save this article

Externalities of Urban Renewal: A Real Option Perspective

Author

Listed:
  • K. Chau
  • S. Wong

Abstract

If carefully planned, urban renewal may play an important role in regenerating a decaying neighborhood and mitigating the negative externality generated by dilapidated buildings in densely populated areas. Despite its potential benefits, in urban areas dominated by high-rise developments, urban renewal has an unintended negative impact on nearby properties since it reduces their redevelopment option values. In this study, we develop a number of hypotheses on how an urban renewal project, once made known to the public, affects neighborhood housing prices and test them with data in Hong Kong. Our empirical findings suggest that the degree of positive externalities brought by urban renewal depends on the scale of an urban renewal project, as well as the amount of commercial areas included in the project. Most importantly, through examining changes in the age coefficient, we found that an urban renewal project reduces the value of nearby buildings beyond the boundaries of the project. The negative effect was stronger for older buildings and for those buildings located closer to the project’s boundaries. These unintended consequences of urban renewal have not been analyzed or tested in previous studies. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • K. Chau & S. Wong, 2014. "Externalities of Urban Renewal: A Real Option Perspective," The Journal of Real Estate Finance and Economics, Springer, vol. 48(3), pages 546-560, April.
    • Handle: RePEc:kap:jrefec:v:48:y:2014:i:3:p:546-560
    DOI: 10.1007/s11146-013-9418-z
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11146-013-9418-z
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11146-013-9418-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Brueckner, Jan K., 1980. "A vintage model of urban growth," Journal of Urban Economics, Elsevier, vol. 8(3), pages 389-402, November.
    2. Zabel, Jeffrey E., 2004. "The demand for housing services," Journal of Housing Economics, Elsevier, vol. 13(1), pages 16-35, March.
    3. Larry C. L. Poon, 1978. "Railway Externalities and Residential Property Prices," Land Economics, University of Wisconsin Press, vol. 54(2), pages 218-227.
    4. Benson, Earl D & Hansen, Julia L. & Schwartz Jr., Arthur & Smersh, Greg T., 1998. "Pricing Residential Amenities: The Value of a View," The Journal of Real Estate Finance and Economics, Springer, vol. 16(1), pages 55-73, January.
    5. Rueter, Frederick H, 1973. "Externalities in Urban Property Markets: An Empirical Test of the Zoning Ordinance of Pittsburgh," Journal of Law and Economics, University of Chicago Press, vol. 16(2), pages 313-349, October.
    6. Otto A. Davis & Andrew Whinston, 1962. "Externalities, Welfare, and the Theory of Games," Journal of Political Economy, University of Chicago Press, vol. 70(3), pages 241-241.
    7. Rosenthal Stuart S. & Helsley Robert W., 1994. "Redevelopment and the Urban Land Price Gradient," Journal of Urban Economics, Elsevier, vol. 35(2), pages 182-200, March.
    8. Clapp, John M. & Bardos, Katsiaryna Salavei & Wong, S.K., 2012. "Empirical estimation of the option premium for residential redevelopment," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 240-256.
    9. R. Sirpal, 1994. "Empirical Modeling of the Relative Impacts of Various Sizes of Shopping Centers on the Values of Surrounding Residential Properties," Journal of Real Estate Research, American Real Estate Society, vol. 9(4), pages 487-506.
    10. Munneke, Henry J., 1996. "Redevelopment Decisions for Commercial and Industrial Properties," Journal of Urban Economics, Elsevier, vol. 39(2), pages 229-253, March.
    11. Clapp, John M. & Salavei, Katsiaryna, 2010. "Hedonic pricing with redevelopment options: A new approach to estimating depreciation effects," Journal of Urban Economics, Elsevier, vol. 67(3), pages 362-377, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kanis Saengchote & Voraprapa Nakavachara & Yishuang Xu, 2023. "Capitalising the Network Externalities of New Land Supply in the Metaverse," PIER Discussion Papers 203, Puey Ungphakorn Institute for Economic Research.
    2. Yanjiang Zhang & Hongyi Fan & Qingling Liu & Xiaofen Yu & Shangming Yang, 2023. "How a Short-Lived Rumor of Residential Redevelopment Disturbs a Local Housing Market: Evidence from Hangzhou, China," Land, MDPI, vol. 12(2), pages 1-15, February.
    3. Xiaojun Li & Jieyu Wang & Ke Luo & Yuanling Liang & Shaojian Wang, 2022. "Exploring the Spillover Effects of Urban Renewal on Local House Prices Using Multi-Source Data and Machine Learning: The Case of Shenzhen, China," Land, MDPI, vol. 11(9), pages 1-16, August.
    4. Kanis Saengchote & Voraprapa Nakavachara & Yishuang Xu, 2023. "Capitalising the Network Externalities of New Land Supply in the Metaverse," Papers 2303.17180, arXiv.org.
    5. Xizan Jin & Tachia Chin & Junli Yu & Yanjiang Zhang & Yingshuang Shi, 2020. "How Government’s Policy Implementation Methods Influence Urban Villagers’ Acceptance of Urban Revitalization Programs: Evidence from China," Land, MDPI, vol. 9(3), pages 1-19, March.
    6. Chen, Yang & Zhang, Xiaoling & Chau, K.W. & Yang, Linchuan, 2022. "How the institutional change in urban redevelopment affects the duration of land redevelopment approval in China?," Land Use Policy, Elsevier, vol. 119(C).
    7. Fan Yang & Peihong Tao & Xiao Cai & Jiayin Wang, 2022. "Transformation for Feature Upgrades or Higher Property Prices: Evidence from Industrial Land Regeneration in Shanghai," Sustainability, MDPI, vol. 14(9), pages 1-20, April.
    8. Lu Zhang & Hongfei Yu & Zhongfa Zhou & Fangxin Yi & Dong Li, 2023. "National Big Data Experimental Area and the Unexpected Booming of the Housing Price in Guiyang of Guizhou Province of China," Land, MDPI, vol. 12(2), pages 1-21, February.
    9. Meng Yuan & Hongjuan Wu, 2024. "Positive or Negative: The Heterogeneities in the Effects of Urban Regeneration on Surrounding Economic Vitality—From the Perspective of Housing Price," Land, MDPI, vol. 13(5), pages 1-27, May.
    10. Valeria Saiu, 2020. "Evaluating Outwards Regeneration Effects (OREs) in Neighborhood-Based Projects: A Reversal of Perspective and the Proposal for a New Tool," Sustainability, MDPI, vol. 12(24), pages 1-16, December.
    11. Fan Zhang & Xiuyan Liu & Songlin Li, 2023. "Rebuilding or refurbishing: Heterogeneity effects of urban renewal strategy," Asian Economic Journal, East Asian Economic Association, vol. 37(1), pages 51-81, March.
    12. Lin, Chun Liang & Chan, Edwin H.W. & Chiang, Wei-Hwa, 2022. "Urban renewal governance and manipulation of plot ratios: A comparison between Taipei, Hong Kong and, Singapore," Land Use Policy, Elsevier, vol. 119(C).
    13. Marek Walacik & Małgorzata Renigier‐Biłozor & Aneta Chmielewska & Artur Janowski, 2020. "Property sustainable value versus highest and best use analyzes," Sustainable Development, John Wiley & Sons, Ltd., vol. 28(6), pages 1755-1772, November.
    14. Chau, K.W. & Davies, Stephen N.G. & Lai, Lawrence W.C. & Lennon, H.T. Choy, 2023. "Museums for ex situ tangible heritage conservation: A neo-institutional analytical and empirical economic analysis," Land Use Policy, Elsevier, vol. 127(C).
    15. Xinjun Dai & Zeling Li & Lindong Ma & Jing Jin, 2022. "The Spatio-Temporal Pattern and Spatial Effect of Installation of Lifts in Old Residential Buildings: Evidence from Hangzhou in China," Land, MDPI, vol. 11(9), pages 1-16, September.
    16. Kuang Kuang Deng & Siu Kei Wong, 2023. "Revisiting the Autocorrelation of Real Estate Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 67(2), pages 243-263, August.
    17. Bo-sin Tang & Kwan To Wong, 2020. "Assessing externality: Successive event studies on market impacts of new housing development on an old residential neighbourhood," Environment and Planning B, , vol. 47(1), pages 156-173, January.
    18. L. Li & Helen X. H. Bao & K. W. Chau, 2023. "On the Strategic Timing of Sales by Real Estate Developers: To Wait or To Presell?," The Journal of Real Estate Finance and Economics, Springer, vol. 66(1), pages 169-196, January.
    19. Chong Peng & Tingzhen Ming & Jianquan Cheng & Yongjia Wu & Zhong-Ren Peng, 2015. "Modeling Thermal Comfort and Optimizing Local Renewal Strategies—A Case Study of Dazhimen Neighborhood in Wuhan City," Sustainability, MDPI, vol. 7(3), pages 1-20, March.
    20. Mario A. Fernandez & Shane L. Martin, 2020. "What’s so special about character?," Urban Studies, Urban Studies Journal Limited, vol. 57(16), pages 3236-3251, December.
    21. Julia Freybote & Hua Sun & Xi Yang, 2015. "The Impact of LEED Neighborhood Certification on Condo Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(3), pages 586-608, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Song Zhang & Mark van Duijn & Arno J. van der Vlist, 2020. "The external effects of inner‐city shopping centers: Evidence from the Netherlands," Journal of Regional Science, Wiley Blackwell, vol. 60(4), pages 583-611, September.
    2. McMillen, Daniel & Singh, Ruchi, 2022. "Land value estimation using teardowns," Journal of Housing Economics, Elsevier, vol. 58(PA).
    3. McMillen, Daniel & O’Sullivan, Arthur, 2013. "Option value and the price of teardown properties," Journal of Urban Economics, Elsevier, vol. 74(C), pages 71-82.
    4. Munneke, Henry J. & Womack, Kiplan S., 2015. "Neighborhood renewal: The decision to renovate or tear down," Regional Science and Urban Economics, Elsevier, vol. 54(C), pages 99-115.
    5. Lindenthal, Thies & Eichholtz, Piet & Geltner, David, 2017. "Land assembly in Amsterdam, 1832–2015," Regional Science and Urban Economics, Elsevier, vol. 64(C), pages 57-67.
    6. Suzanne Lanyi Charles, 2013. "Understanding the Determinants of Single-family Residential Redevelopment in the Inner-ring Suburbs of Chicago," Urban Studies, Urban Studies Journal Limited, vol. 50(8), pages 1505-1522, June.
    7. McGrath, Daniel T., 2000. "Urban Industrial Land Redevelopment and Contamination Risk," Journal of Urban Economics, Elsevier, vol. 47(3), pages 414-442, May.
    8. d’Amato, Maurizio & Zrobek, Sabina & Renigier Bilozor, Malgorzata & Walacik, Marek & Mercadante, Giuseppe, 2019. "Valuing the effect of the change of zoning on underdeveloped land using fuzzy real option approach," Land Use Policy, Elsevier, vol. 86(C), pages 365-374.
    9. Siodla, James, 2015. "Razing San Francisco: The 1906 disaster as a natural experiment in urban redevelopment," Journal of Urban Economics, Elsevier, vol. 89(C), pages 48-61.
    10. Braid, Ralph M., 2001. "Spatial Growth and Redevelopment with Perfect Foresight and Durable Housing," Journal of Urban Economics, Elsevier, vol. 49(3), pages 425-452, May.
    11. Clapp, John M. & Eichholtz, Piet & Lindenthal, Thies, 2013. "Real option value over a housing market cycle," Regional Science and Urban Economics, Elsevier, vol. 43(6), pages 862-874.
    12. Simon B chler, Alex van de Minne, Olivier Sch ni, 2020. "Redevelopment Option Value for Commercial Real Estate," Diskussionsschriften credresearchpaper26, Universitaet Bern, Departement Volkswirtschaft - CRED.
    13. Chia, Liu Ee & Sing, Tien Foo, 2023. "Redevelopment values in multi-family properties: Evidence from en bloc sales in Singapore," Journal of Housing Economics, Elsevier, vol. 60(C).
    14. Redfearn, Christian L., 2009. "Persistence in urban form: The long-run durability of employment centers in metropolitan areas," Regional Science and Urban Economics, Elsevier, vol. 39(2), pages 224-232, March.
    15. McDonald, John F. & McMillen, Daniel P., 2000. "Employment Subcenters and Subsequent Real Estate Development in Suburban Chicago," Journal of Urban Economics, Elsevier, vol. 48(1), pages 135-157, July.
    16. John Clapp & Piet Eichholtz & Thies Lindenthal, 2012. "Real Option Value over a Housing Market Cycle: West Berlin," ERSA conference papers ersa12p264, European Regional Science Association.
    17. Tirthatanmoy Das & Kabir Dasgupta, 2018. "Evaluating the Impact of Mothers' Self-esteem on Early Childhood Home Environment: Evidence from NLSY," Working Papers 2018-03 JEL Classificatio, Auckland University of Technology, Department of Economics, revised Oct 2019.
    18. Christian L. Redfearn, 2007. "Determinacy in Urban Form: Fixed Investment & Path Dependence in Urban Areas," Working Paper 8559, USC Lusk Center for Real Estate.
    19. Gang‐Zhi Fan & Ming Pu & Tien Foo Sing & Xiaoyu Zhang, 2022. "Risk aversion and urban land development options," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(3), pages 767-788, September.
    20. Mario A. Fernandez & Shane L. Martin, 2020. "What’s so special about character?," Urban Studies, Urban Studies Journal Limited, vol. 57(16), pages 3236-3251, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jrefec:v:48:y:2014:i:3:p:546-560. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.