An empirical study on the positive externality of building refurbishment

Abstract

Purpose The paper's objective is to empirically study the effects of building refurbishment on the prices of the dwelling units in a contiguous housing estate in Hong Kong. Design/methodology/approach In a congested living environment like Hong Kong, it is difficult, if not impossible, to have a view unobstructed by buildings. As such, the quality of views is dependent on the aesthetic quality of surrounding buildings. It is likely that poorly maintained buildings will impose negative visual effects on their immediate surroundings. Refurbishing these poor buildings should, therefore, reduce or even counter this negative externality. To study the positive externality brought about by building refurbishment, a hedonic price analysis was conducted on a set of panel data consisting of property transactions in a large housing estate located in Pokfulam. This estate was chosen because its adjoining buildings underwent refurbishment in 1998. Findings The results showed that the refurbishment increased significantly the prices of those properties which faced refurbished buildings, keeping other things constant. The increments, on average, amounted 6.6 per cent of the prices of the properties. Research limitations/implications Building refurbishment can have various scopes and scales but this study did not consider how the characteristics of the building refurbishment affected the prices of neighbourhood properties. Practical implications Given the problems of aging buildings in most urban areas, the results presented significant practical implications for building refurbishment and urban renewal as a whole. Developers or property owners may be lured to invest in the refurbishment of adjacent dilapidated properties with a view to enhancing the values of their own properties. Originality/value Although previous studies analytically suggested that building refurbishment created positive externality, this study is the first attempt to explore this connection.