Wednesday, April 30, 2014

Munneke & Womack on Neighborhood Renewal: The Decision to Renovate or Teardown

You know I love a good "neighborhoods" article.  And that is why I am highly recommending an admittedly non-legal article, "Neighborhood Renewal: The Decision to Renovate or Teardown," by Henry J. Munneke (Georgia - Department of Insurance, Legal Studies, Real Estate) and Kiplan S Womack (Pepperdine - Graziadio School of Business & Management).

Here is the abstract:

Within the neighborhood renewal process, property owners and investors attempt to reverse the decline in housing stock quality and correct market obsolescence through redevelopment. However, since the existing improvements can be redeveloped either in part (renovations) or in whole (teardowns), a choice must be made between these two processes. While renovations and teardowns have been examined by numerous studies as separate phenomena, this study jointly examines these decisions to provide a better understanding of how and where redevelopment occurs. Notably, the results show support for the notion that renovations and teardowns occur in spatial clusters, but further refine this finding in that they tend to occur in separate spatial clusters. Additionally, the implicit market prices of the structural attributes of properties purchased for major renovations are shown to be equivalent to teardown sales, where the property is valued only for the underlying land. 

And here is a little more from the intro:

 

Key results from this study can be briefly summarized as follows. The primary differences in the determinants of the redevelopment decision are that the interior area of the existing structure is central to the renovation decision, while lot area is most relevant to the teardown decision. The primary similarities are that the likelihood of both renovations and teardowns are strongly influenced by location and the ratio of land value to total property value. The results also provide interesting insights into the spatial aspects of the redevelopment decision. In particular, this study provides evidence that renovations and teardowns occur in separate (non-overlapping) spatial clusters.


Perhaps most notably, the study provides strong support for the existence of variation in the price impact of structural attributes based on the changes to the attributes post-purchase. Specifically, the structural attributes of properties purchased for renovation are found to be less valuable than nonredeveloped properties, and properties purchased for major renovations are found to be equivalent to teardown sales, where the property is valued only for the land. These results persist even when controlling for selection bias, demographic variables, neighborhood fixed effects, and market conditions.

Stephen R. Miller

http://lawprofessors.typepad.com/land_use/2014/04/munneke-womack-on-neighborhood-renewal-the-decision-to-renovate-or-teardown.html

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