Abstract
The Hedonic Pricing Method is one of the principal assessment methods for evaluating services and resources not normally exchanged on the market. However, the method is often unable to account for the great variety of qualities in an urban context and faces scarce and heterogeneous market data. This paper presents a model for the valuation of benefits generated by environmental and urban improvement investments adopting a mixed hedonic-multi-attribute procedure for modeling a value function of urban real estate values. The peculiarity of the model is that the independent variables are aggregated indicators, which synthetize more detailed characteristics. Using the expertise of real estate agents, all relevant variables influencing real estate values were weighted and synthetized in a set of cardinal indicators. Next, market prices were used to calibrate a hedonic function that transforms the cardinal indicators into real estate values. The valuation model was integrated into a GIS for mapping the housing value, and its variation induced by urban investment. The proposed model pointed out plausible and robust results, in particular, the possibility to use any available information, such as location, position, technical and economic characteristics of buildings, and organize it in a flexible and transparent way, and to keep evident the role of each characteristic through the hierarchical structure of the model. The model was applied to the real estate market of Venice to test the effects of the MOSE project (Electromechanical Experimental Module) for the protection of Venice from high tides. The results of the application showed a relevant increase in real estate values in the center of Venice, especially related to property in ground floor units, of about 1.4 billion €.
Highlights
The evaluation of urban improvements is a relevant issue for urban planning and public decision making
This paper aims to develop an integrated approach that merges multi attribute value functions based on expert judgments with the econometric analysis of market information—allowing for the assessment of changes in the urban environment in a specific local real estate market
The model proposed in this paper sought to overcome these limits by integrating the expertise of real estate market operators—formalized through a multi-attribute analysis procedure—into the hedonic approach applied to market data
Summary
The evaluation of urban improvements is a relevant issue for urban planning and public decision making. Most of the benefits produced by public infrastructure and services, including the conservation and development of environmental amenities, are not exchanged on markets, yet produce considerable benefits which translate into private increases in welfare and benefits The assessment of these benefits represents one major challenge in decision making on options for public investments. The assessment of environmental externalities in generally based on individual preferences with respect to welfare gains, based on: (i) stated preference (or willingness to pay), that is estimated using the contingent valuation method [1] or choice experiments [2]; or (ii) revealed preference that is elicited on the basis of expenditure persons are incurring, using e.g., travel cost methods [3] or hedonic pricing methods [4] In this context, residential properties are of particular interest. The same argument is still used today, for instance, when the city of Copenhagen included increased income tax due to improved greenery into the cost benefit analysis of a cloud burst plan which relied heavily on urban green and blue spaces [6]
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