Institutional innovations from state-dominated to market-oriented: Price premium differentials of urban redevelopment projects in Shenzhen, China

Abstract

Urban redevelopment has been widely acknowledged as a cure for the urban diseases relevant to urban deterioration, decayed environment, and limited land supply in the process of rapid urbanization and economic development in Chinese megacities. Given the slow and inefficient progress of traditionally state-dominated redevelopment because of high transaction costs, Shenzhen has been authorized to pioneer market-oriented urban redevelopment. Our study aims to assess how institutional innovations in urban redevelopment affect the market value of redevelopment projects. In line with this goal, major institutional innovations in market-oriented urban redevelopment are identified and analyzed. Furthermore, a number of hypotheses on whether these innovative rules affect the market value of redevelopment projects are developed. Two-stage regression models are employed, and all existing 183 urban redevelopment projects are used as samples to test these hypotheses. Our empirical findings indicate that the market premium (MP) of redevelopment projects is higher if the developer is the applicant compared with old factory owners, village committees, or the local government department as the applicants. Redevelopment projects from old residential properties gain a higher MP than those from old factory buildings. The MP of redevelopment projects from old factories on state-owned land is higher than that on collective-owned land. MP is higher for projects sited in larger urban redevelopment areas and for projects constructed with the public school as the developer obligation. These MP performances incurred by different institutional arrangements in market-oriented urban redevelopments have barely been revealed in previous studies. This study serves as a valuable reference for the government to make tailor-made land value capture schemes so as not to lose public value increases or kill redevelopment projects.