An empirical study on the externality of building rehabilitation on neighbouring property prices

Abstract

In Hong Kong, urban decay is still a persistent and unavoidable issue. Given the lengthy and complex process of redevelopment, building rehabilitation becomes an essential way to slow down urban deterioration. The economic benefits that extend to neighbouring properties have not received as much attention as they should, with previous attention primarily focused on the improved living conditions and increased value of rehabilitated buildings. The purpose of this dissertation is to delve into how nearby residential property values are affected by building rehabilitation. A hedonic price model was employed to analyze transaction records of surrounding buildings associated with 15 rehabilitation projects conducted under the Operation Building Bright scheme by the Urban Renewal Authority. The empirical results of this study showed that building rehabilitation generally had a positive effect on the neighbouring residential properties. This was consistent with previous research by Smith & Hevener (2011), Ding et al. (2000), and Bak and Hewings (2017) that have also shown the positive impact of building rehabilitation on nearby property values. However, this study contradicted the findings of Yau et al. (2008) and refuted the idea that units facing the rehabilitated building benefit significantly from building rehabilitation. The findings implied that in this situation, other factors might have a greater effect on property values than the view of the rehabilitated building. Furthermore, the research indicated that the positive effect of renovating a building decreased with increasing distance between the property and the rehabilitation projects. This suggested that for buildings located closer to the rehabilitation projects, the impact of building rehabilitation on property prices is more noticeable. The degree of the positive externality is significantly influenced by the distance factor. Rehabilitation projects have varying effects on property values in different districts. In particular, this study examined rehabilitation projects in three districts: Tsuen Wan District, Sham Shui Po District, and Central and Western District. The results indicated that property prices are more remarkably impacted by buildings situated in areas with higher levels of building rehabilitation. The relationship between the intensity of building rehabilitation and property prices indicates that areas with a greater concentration of rehabilitation projects experience a greater degree of improvement in the general quality and appearance of buildings. This can lead to a more positive perception of the district, thereby driving up property prices. Rehabilitating buildings is an important way to address urban deterioration, but little is known about how it will affect nearby properties. With a focus on the overall effect, proximity effect and district-based effect, this study aims to fill this knowledge gap by investigating how building rehabilitation affects nearby property values. This study contributes to an improved understanding of how building rehabilitation can benefit the surrounding neighbourhood by examining these different aspects. The outcomes of this study have implications for policymakers, developers and building owners beyond its academic value. The results can be used as a guide by policymakers to evaluate the effectiveness of building rehabilitation. By considering the external benefits brought by building rehabilitation, policymakers can further support and promote rehabilitation efforts, not only for preventive maintenance but also for the positive impact they have on the neighborhood.