Abstract
Theoretical and empirical studies on how building quality or performance is valued by the property market abound in the literature. While some of them investigate the changes in property price after building renovation, little has been done on the pricing of safety performance of buildings. In this regard, this preliminary research aims to explore if residential properties in safer buildings command higher market values in Hong Kong. Hong Kong provides a good laboratory for this study because it is a densely-populated city where high-rise buildings are common. In such an environment, building failures can pose a serious threat. A spate of building-related accidents in the city in recent years has demonstrated the painful consequences of neglect of building safety. For the purpose of this study, the safety performance of a building is measured by the weighted number of unauthorized building works (UBWs) present on the external walls of the buildings. By their nature, UBWs are building works that are constructed without prior approval and consent from the government. A hedonic price model is developed for assessing the market value of building safety. For the model estimation, apart from the property transaction data, the number of unauthorized appendages (i.e., UBWs attached to the building facades) in each building under study is obtained through a building survey. Based on the analysis results, several hypotheses built upon the theories of self-protection and self-insurance put forward by Ehrlich and Becker (1972) are tested.
Highlights
“A safe home is a good home”, as the saying goes
There are two major reasons why the safety performance of a building is proxied by the number of unauthorised appendages, which are essentially illegal or unauthorised building works (UBWs)
Based on Ehrlich and Becker’s (1972) theory of self-protection, if safety risks created by UBWs are not covered by market insurance, a rational individual should pay less to buy a property in a building with a higher degree of proliferation of unauthorised appendages because the probability of a building failure associated with unauthorised appendages is higher
Summary
“A safe home is a good home”, as the saying goes. Safety is defined by the World Health Organization (1998: 6) as “a state in which hazards and conditions leading to physical, psychological or material harm are controlled in order to preserve the health and well-being of individuals and the community”. This is because salvus and solwos, the Latin and Proto-Indo-European antecedents of word safe, mean ‘uninjured and healthy’ and ‘whole’, respectively (Nilsen et al, 2004) It is sensible for Alton Thygerson (1977) and Thomas Hunter (1992) to define safety as a state free from hazard or danger. There is a large volume of empirical literature on how an overall change in building performance or conditions (e.g., through refurbishment and renovation) is reflected in property price or rental level (Chau et al 2003; Hui et al, 2008; Fortes & McCarthy, 2010) but little has been done on pricing the safety performance of buildings In this regard, this preliminary research explores whether residential properties in safer buildings command higher market values in Hong Kong. Unauthorised appendages are the most observable among all types of UBWs
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