Does Comprehensive Redevelopment Change the Housing Price Gradient? A Case Study in Mongkok, Hong Kong Simon Y. YAU Department of Public and Social Administration City University of Hong Kong ERES Conference June 2009

ERES Conference June Part A Background of the Study

ERES Conference June Your impression of Hong Kong …

ERES Conference June Extent of Building Dilapidation in Hong Kong

ERES Conference June 2009 Externalities of Redevelopment  Costs and benefits of a redevelopment project  net monetary gains to measure a government’s efficiency in an urban redevelopment project (Broadway, 1974)  When assessing the project benefits  rise in property value of the redevelopment site  direct and indirect jobs created by the project  possible spillover effects of the project  Large-scale improvement or redevelopment projects increase the values of properties in their vicinity (e.g. Rosenthal and Helsley, 1994; Baleiras et al., 2004)

ERES Conference June Research Gap and Aim of this Study  Few empirical studies  exploring the externalities of redevelopment on neighbouring properties  To empirically study  effects of comprehensive redevelopment on the market prices of neighbouring properties  by hedonic price analysis of a set of panel data in Hong Kong

ERES Conference June Part B Analytical Framework and Methodology

ERES Conference June Argyle Street/Shanghai Street Redevelopment Project - Langham Place (office tower, hotel and shopping mall) - completed in end of 2004

ERES Conference June Mongkok

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ERES Conference June Analytical Model  Founded on Rosen’s (1974) seminal work, price of a property treated as aggregate of the implicit prices of its property attributes:  property age  floor area  floor level (i.e. vertical location in a building)  external environment  … etc.

ERES Conference June Hedonic Price Model VariableDescription RPRICE st real transaction price of property s at time t (in HK$ million) AGE st age of property s at time t, equating the difference between the date of the issue of the occupation permit and the transaction date (in years) FLOOR s floor level of property s AREA s saleable floor area of property s (in square feet) DIST s distance between property s and the centre of Langham Place complex (in metres) AFTER_RED s is a dummy variable which equals 1 if the transaction was engaged after the opening of Langham Place and zero if otherwise

ERES Conference June Part C Data Descriptions and Analysis Results

ERES Conference June Source and Descriptive Statistics of the Data Continuous VariableMaximumMeanMinimum Standard Deviation RPRICE (in HK$ million) AGE (in years) FLOOR AREA (in square feet)1, DIST  Transaction data for residential properties  within 500 metres from the centre of Langham Place  from January 2003 to September 2006  obtained from the Economic Property Research Centre  6,475 property transactions 2,962 (~ 45.75%) engaged after the opening of Langham Place

ERES Conference June 2009 Dependent Variable: lnRPRICE Independent Var.CoefficientStd. errort-statisticp-value CONSTANT ** AGE ** AGE x x ** FLOOR ** FLOOR x x # AREA x ** AREA x x ** DIST-8.36 x x * DIST*AFTER_RED2.29 x x Adjusted R-squared Durbin-Watson statistic F-statistic Akaike Info Criterion Prob (F-statistic) Number of observations6,475

ERES Conference June Part D Implications of the Analysis Results and Discussions

ERES Conference June 2009 Why No Positive Externalities?  Confirming previous studies (by Chau et al., 2004; Lai et al., 2007)  comprehensive redevelopment projects in Hong Kong not exerting a net positive price effect on the residential properties in the neighbourhoods  Non-existence of a net positive externality  counter effects of the negative environmental impacts created by the gigantic Langham Place complex (e.g. reduction in openness and blockage of natural lighting and ventilation)  a so-called ‘screen-wall effect’  lowering the rate of air flow in the area 20

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ERES Conference June 2009 Gentrification?  Smith’s (1979) explanation of gentrification  rent gap ‘the disparity between the potential ground rent level and the actual ground rent capitalized under the present land use’  Results of this study suggesting  rent gap may not exist  Spatial-price gradient the properties in the neighbourhood of Langham Place not changing after the project completion  seemingly not supporting the rent gap theory  dummy variable AFTER_RED is added to the equation  insignificant at the 10 percent level 22

ERES Conference June Concluding Remarks  Redevelopment thought to have positive externalities on nearby properties  Hedonic price analysis  spatial-price gradient of neighbouring properties not changing  confirming findings of Chau et al. (2004) and Lai et al. (2007)  doubtful usefulness of rent gap theory  Further studies suggested to investigate  if gentrification is observed in the environs of Langham Place  impacts of different types of urban regeneration projects  public administrators knowing how urban regeneration should proceed with a view to better economic sustainability

ERES Conference June Thank You ! For comments and questions, please me at ACKNOWLEDGEMENT The work described in this paper was supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China (Project No. CityU 1508/08).