The impact of private and public sector led redevelopment on nearby housing prices

Abstract

Urban redevelopment has emerged as an important strategy to address urban decay and optimise land resources in high-density cities. This dissertation examines the economic impacts of redevelopment projects led by the Urban Renewal Authority (URA) and private developers on nearby residential property prices, employing a comparative empirical framework that integrates hedonic price theory with real option theory. With a dataset of 45646 secondary housing transactions from 1991 to 2024, the study utilises three Ordinary Least Squares regression models to test hypotheses concerning value enhancing effect by amenity enhancement, supply shock effect, option value depression, and legislative influences under the Land (Compulsory Sale for Redevelopment) Ordinance (LCSRO). Within Hong Kong (HK)’s unique leasehold system and high-density urban context, the analysis provides insights into how public and private redevelopment modalities differentially shape property market dynamics. The findings reveal that both URA and private sector-led redevelopment projects generate significant positive externalities, increasing nearby property prices by an extra one-fifth. Private projects outperform URA regardless of a scale adjustment, highlighting their efficiency in utilising profit-driven strategies to enhance neighbourhood value. Contrary to conventional assumptions, a larger redevelopment scale does not merely induce a better amenity; instead, a non-linear relationship emerges due to supply shock, with an optimal redevelopment scale of 44730 square metres maximising positive spillovers. Both URA and private redevelopment depress the real option value of adjacent properties, with private projects inducing a stronger effect, underscoring URA’s greater constraint on redevelopment potential. Legislative amendments to the LCSRO in 1999 and 2010 further amplified property prices by reducing acquisition costs, with older buildings experiencing substantial increases, reflecting the enhancement of option values. These results provide significant academic and practical implications. Academically, the study integrates hedonic and real option frameworks in a leasehold context, and challenging assumptions of public-sector dominance in urban renewal efficacy. For investors, the findings highlight opportunities to capitalise on proximity to redevelopment projects while cautioning against risks to option values of older properties. Valuers gain a quantifiable basis to adjust for externalities and legislative effects, reducing mispricing issues. Policymakers are equipped with evidence to refine urban renewal strategies, balancing private sector incentives with URA’s social objectives and minority owner protections under further policy adjustments. Despite the robustness, the study faces limitations, such as the reliance on demolition consent dates rather than precise announcements potentially misaligning the periods without externality. Variable selection of the model, limited to structural attributes and project-specific dummies, omits detailed neighbourhood and locational factors. The 200-meter radius may not fully capture spatial variations of externality. Future research could also extend their scope by incorporating construction phase externalities, disaggregating amenity effects, and assessing the impact of LCSRO amendment in 2024 as post-amendment transaction data accumulates. This dissertation thus provides contributions to understanding redevelopment’s economic externalities, offering insights for the advancement of urban renewal practices and strategies.