Dwelling Age, Redevelopment, and Housing Prices: The Case of Apartment Complexes in Seoul

Dwelling Age, Redevelopment, and Housing Prices: The Case of Apartment Complexes in Seoul 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 45∼53 percent of the initial value, due to depreciation. However, the redevelopment effect increases the price by as much as 28∼32 percent, driving the price up to 76∼87 percent of the original value. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Dwelling Age, Redevelopment, and Housing Prices: The Case of Apartment Complexes in Seoul

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Publisher
Springer Journals
Copyright
Copyright © 2005 by Springer Science + Business Media, Inc.
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-004-4831-y
Publisher site
See Article on Publisher Site

Abstract

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 45∼53 percent of the initial value, due to depreciation. However, the redevelopment effect increases the price by as much as 28∼32 percent, driving the price up to 76∼87 percent of the original value.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Oct 29, 2004

References

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