The Negative Impact of Public Sector-led Redevelopment Projects on the Prices of Old and New Housing Units in High Density Urban Areas

Abstract

Besides the well-known positive impacts of public sector-led urban redevelopment projects on housing prices in their vicinity, we found that there were less noticeable negative impacts on the prices of very new and old housing units nearby, especially in high density urban areas where housing is mainly in the form of multiple-owned high-rise apartment units. First, the prices of older housing units declined faster after the announcement of a nearby public sector-led development. We explain this by decomposing the value of the property into existing use value and real redevelopment option value. The latter component was significantly reduced by a nearby public sector-led redevelopment. Second, for the very new nearby housing units, their prices also declined when there was nearby redevelopment due to an expected increase in the supply of new housing units. Based on second-hand housing transaction records in the vicinity of public sector-led redevelopment projects over a 12-year period, we were able to isolate the above negative impacts from other external effects. The empirical results support the existence of both negative impacts of public sector-led urban redevelopment projects.