Abstract
Using a transaction price database, in this paper we evaluate the economic effect of abandoned and derelict real estate areas on housing prices in Milan Italy from 1993 to 2016. We find that brownfields are widespread throughout Milan, with larger abandoned and derelict areas prevalent in the suburbs. Standard hedonic price models show that nearby brownfield areas lower housing prices, with stronger effects for larger derelict and abandoned areas. Economic losses are more relevant to houses in the historical city center and are affected by real estate market trends.
Highlights
During the last decades, constraints on all real estate in Milan have increased significantly due to greater attention to quality of life and the environment and the fact that real estate assets can no longer be used in the same way as in the past
The results show that derelict buildings and areas are concentrated in the suburbs and have a negative effect on real estate value that is proportional to the number and size of the brownfield areas
Housing prices are significantly affected by the location and the presence of derelict and abandoned areas, which can change the demand for residential real estate
Summary
Constraints on all real estate in Milan have increased significantly due to greater attention to quality of life and the environment and the fact that real estate assets can no longer be used in the same way as in the past. Brownfield areas in a city require intervention planned by public authorities to avoid the negative effects in the long run related to the concentration of people outside the downtown area. In such scenarios, real estate demand at the city center is expected to decrease due to the increase in transportation quality. The literature shows that real estate markets are affected by foreclosures of abandoned houses These have an economically significant impact, even within a one-block radius, due to the effect on the demand for all the neighborhood’s properties (Immergluck and Smith, 2005). Real estate market trends (bull vs. bear) affect the impact of abandoned and derelict areas on housing value: in a bull market, the existence of a brownfield is sufficient to reduce the price growth of a house; in a bear market, only large brownfield areas will have a negative effect on housing value
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