1. 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 2009 24-27 June 2009

2. ERES Conference 2009 24-27 June 2009 2 Part A Background of the Study

3. ERES Conference 2009 24-27 June 2009 3 Your impression of Hong Kong …

4. ERES Conference 2009 24-27 June 2009 4 Extent of Building Dilapidation in Hong Kong

5. ERES Conference 2009 24-27 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)

6. ERES Conference 2009 24-27 June 2009 6 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

7. ERES Conference 2009 24-27 June 2009 7 Part B Analytical Framework and Methodology

8. ERES Conference 2009 24-27 June 2009 8 Argyle Street/Shanghai Street Redevelopment Project - Langham Place (office tower, hotel and shopping mall) - completed in end of 2004

9. ERES Conference 2009 24-27 June 2009 9 Mongkok

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14. ERES Conference 2009 24-27 June 2009 14 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.

15. ERES Conference 2009 24-27 June 2009 15 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

16. ERES Conference 2009 24-27 June 2009 16 Part C Data Descriptions and Analysis Results

17. ERES Conference 2009 24-27 June 2009 17 Source and Descriptive Statistics of the Data Continuous VariableMaximumMeanMinimum Standard Deviation RPRICE (in HK$ million)12.112.180.022.04 AGE (in years)589.00238.670.00168.53 FLOOR51.0013.791.0011.04 AREA (in square feet)1,006.81358.570.00115.74 DIST500.00237.1235.0098.41  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

18. ERES Conference 2009 24-27 June 2009 Dependent Variable: lnRPRICE Independent Var.CoefficientStd. errort-statisticp-value CONSTANT-0.4111070.028999-14.176520.0000 ** AGE-0.0037590.000101-37.396660.0000 ** AGE 2 2.87 x10 -6 1.93 x10 -7 14.868350.0000 ** FLOOR0.0104240.0011129.3733290.0000 ** FLOOR 2 -4.40 x10 -5 2.47 x10 -5 -1.7839350.0745 # AREA0.0038708.21 x10 -5 47.142630.0000 ** AREA 2 -1.51 x10 -6 6.59 x10 -8 -22.904640.0000 ** DIST-8.36 x10 -5 4.23 x10 -5 -1.9752850.0483 * DIST*AFTER_RED2.29 x10 -5 2.86 x10 -5 0.7999860.4237 Adjusted R-squared0.857634 Durbin-Watson statistic1.002656 F-statistic4876.035 Akaike Info Criterion0.366094 Prob (F-statistic)0.000000 Number of observations6,475

19. ERES Conference 2009 24-27 June 2009 19 Part D Implications of the Analysis Results and Discussions

20. ERES Conference 2009 24-27 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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22. ERES Conference 2009 24-27 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

23. ERES Conference 2009 24-27 June 2009 23 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

24. ERES Conference 2009 24-27 June 2009 24 Thank You ! For comments and questions, please e-mail me at y.yau@cityu.edu.hk y.yau@cityu.edu.hk 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).