Externalities of Urban Renewal A Real Option Pers

Authors: K W Chau S K Wong

Publish Date: 2013/03/28

Volume: 48, Issue: 3, Pages: 546-560

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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 highrise 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 studiesWe are very grateful to an anonymous referee Edward Coulson Dogan Tirtiroglu and participants of the AsiaPacific Real Estate Research Symposium for their useful comments on and suggestions for our paper We would also like to thank Amber P S Leung and Daniel Y F Lo for their assistance in data collection We gratefully acknowledge the financial support provided by the GRF of the Research Grant Council of the Hong Kong Special Administrative Region Project Reference 740913 and the HKU GRF/ECS Incentive Awards

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