Dwelling Age, Redevelopment, and Housing Prices:
The Case of Apartment Complexes in Seoul
BUN SONG LEE
Division of Economics, University of Seoul, 90 Jeonnong-dong, Dongdaemun-gu, Seoul 130-743, South Korea
Department of Real Estate, Konkuk University, 1 Hwayang-dong, Gwangjin-gu, Seoul 143-701, South Korea
YONG HYUN KIM
Korea Labor Institute, 16-2 Yeoido-dong, Yeongdungpo-gu, Seoul 150-740, South Korea
The aging of a housing structure not only leads to depreciation but also increases the possibility of
redevelopment. If redevelopment accompanies an increase in structural density in order to accommodate the
increased demand for housing, it provides large capital gains to the existing owners. In this case, expectations
of redevelopment in the near future and the eventual announcement of redevelopment plans can have a strong
positive impact on the current price of housing. We test this hypothesis using a hedonic pricing model designed
to decompose the age effects into depreciation effect and redevelopment effect. Based on 3,474 observations on
apartments in Seoul in 2001, estimation results confirm our hypothesis. While the depreciation effect dominates
the redevelopment effect until 15 to 19 years of age, depending on the specification, the redevelopment effect
eventually dominates the depreciation effect thereafter, causing the apartment price to increase. At 27 years of
age, the apartment price decreases by as much as 45õ53 percent of the initial value, due to depreciation.
However, the redevelopment effect increases the price by as much as 28õ32 percent, driving the price up to
76õ87 percent of the original value.
Key Words: dwelling age, redevelopment, hedonic pricing, apartments
Housing can be thought of as a bundle of characteristics. This fact comes from the well-
known feature of housing, most notably, heterogeneity, durability and immobility.
Housing is produced with capital and land inputs along with labor, with each input
having different attributes. Dwellings (or structures) differ in size, number of rooms, age,
and the quality and quantity of equipments. Dwellings are also different in terms of their
location characteristics (e.g., accessibility, provisions of public services and taxes,
environmental qualities, and land use controls or zoning ordinances). Hedonic pricing
models are frequently employed to measure the implicit prices of differentiated products
Journal of Real Estate Finance and Economics, 30:1, 55–80, 2005
2005 Springer Science + Business Media, Inc. Manufactured in The Netherlands.