Reaping the premium in urban redevelopment

Abstract

IntroductionThis paper investigates new new-built premium in urban redevelopments. Constructing new homes on urban redevelopment sites entails additional investments in reshaped lay-out, refurbished infrastructure, and upgraded outdoor areas. These improvements are expected to yield new-build premiums when the new units are put on the market, with ‘premium’ defined as the extra price that a developer asks for, compared to similar units in the second-hand market, in nearby locations. We askDo urban redevelopment schemes create extra new-build premiums? Does the organisation of redevelopments affect the size of the premium and who harvests it? Method and dataIn focus here are redevelopment schemes in Oslo, Norway, 2002–2015. It distinguishes between four types of developments: greyfield, brownfield and two kinds of infill. This distinction is applied to compare new-build premiums in various redevelopments. As the value-added from upgraded redevelopment may spill over to adjacent neighbourhoods, we also analyse whether such neighbourhoods experience hikes in house-prices. Our dataset consists of sales transactions from approx. 90,000 second-hand house sales and 19,000 new house sales. Results/findingsThe premium for new-builds in relation to second-hand sales varies significantly among the types of development. Units in small infill developments entail significantly higher new-built premiums than units in large brownfield- or greyfield redevelopments. Moreover, some schemes show a negative new-build premium. Examination of existing houses nearby shows a hike in prices in the time-span in question. We conclude that the new-build premium is low, and that developers fail to harvest full new-build premiums in urban redevelopment schemes. DiscussionIn interpreting our findings, we revisit ‘rent-gap theory’ and its emphasis on attracting investment to rundown central areas. Concurrence in scale, design and time helps to explain the differences across types of redevelopments, and why what might be expected to be new-build premiums instead raise prices in existing neighbouring areas.