Rebuilding or refurbishing: Heterogeneity effects of urban renewal strategy

• Published date: 01 March 2023
• Author: Fan Zhang,Xiuyan Liu,Songlin Li
• Date: 01 March 2023
• DOI: http://doi.org/10.1111/asej.12289

ORIGINAL ARTICLE

Rebuilding or refurbishing: Heterogeneity effects of urban

renewal strategy

Fan Zhang

1

| Xiuyan Liu

1

| Songlin Li

2

1

School of Economics & Management, Southeast University, Jiulong Lake Campus, Southeast University,

Nanjing City, China

2

Jiangsu Academy of Industry Development, Nanjing University of Finance & Economics, Nanjing City, China

Correspondence

Xiuyan Liu, School of Economics & Management, Southeast University, Jiulong Lake Campus, Southeast

University, Nanjing City 211189, P.R. China.

Email: lxiuyan320@seu.edu.cn

Abstract

This study investigates the heterogeneous policy effects of urban renewal strategies in

shantytown renewal in Beijing. Using the spatial difference-in-difference approach, this

study identifies the renewal approaches for each shantytown to analyze how each strategy

affects housing prices and population density within the policy target area and surround-

ing area. The empirical results suggest that current urban renewal actions in Beijing have

not achieved the expected policy goals and imply significant heterogeneity between

refurbishing and rebuilding shantytowns in improving building value. Rebuilding pro-

jects have positive renewal effects and externalities, driving housing prices to increase by

5.86%–7.25% within the shantytown and a 1-km radius. Furthermore, the dynamic anal-

ysis shows that these impacts are prolonged, with housing prices maintaining an upward

trend for 2–6 years after rebuilding. However, there is no causality between refurbishing

dilapidated areas and increasing building values.

KEYWORDS

externalities, housing prices, population density, renewal effect, shantytown

JEL CLASSIFICATION

O2, R1

1|INTRODUCTION

With de-industrialization in developed countries and rapid urbanization in

developing countries, economists and policymakers consider urban renewal an

DOI: 10.1111/asej.12289

© 2023 East Asian Economic Association and John Wiley & Sons Australia, Ltd.

Received: 24 January 2022; Accepted: 10 February 2023

Asian Econ. J. 2023;37:51–81. wileyonlinelibrary.com/journal/asej 51

important solution for urban development. Economists have highlighted that

urban renewal contributes to local economic and human habitats through direct

investment by redeveloping decaying urban areas (e.g., Akita & Fujita, 1982)

and externalities after project completion (e.g., Schall, 1976). Policymakers are

also active in redeveloping cities through urban planning and place-based poli-

cies, making urban renewal widespread in different cities. Examples include the

Toronto industrial park redevelopment (de Sousa, 2002), Beijing urban village

demolition (Zhang et al., 2016), and Hong Kong Tonglou renewal (Zheng

et al., 2020). However, urban renewal led to the removal of many old buildings,

which raises concerns about historical and cultural preservation and doubts

about the necessity of renewal by demolition and rebuilding (Ahlfeldt, 2011;

Noonan & Krupka, 2010; Poole & Appler, 2018). More importantly, another

recent trend in urban renewal practices is transitioning from rebuilding to

refurbishing by restricting rebuilding in historic districts. For example, the Chi-

nese Government requires that the ratio of demolished area to total renewal

area in old city renovations be less than 20%.

1

Thus, there is a natural question:

Do renewal projects focusing on refurbishment and rebuilding have the same

effects?

This study investigates the heterogeneous effects of urban renewal policies

associated with renewal in shantytown redevelopment between 2013 and 2019 in

Beijing, China. For this purpose, we construct a geocoded dataset on shanty-

towns and distinguish between refurbishment and rebuilding using Baidu Street

View. Next, using the spatial difference-in-differences (DID) approach, we iden-

tify the direct impact on shantytowns and the externalities to the surrounding

area and evaluate the policy’s effectiveness from two dimensions. One is housing

prices, a classic indicator used in prior studies to capture the renewal effect

(e.g., Zhang et al., 2016; Zheng et al., 2020). Another is population density, as

transferring the population from downtown is one of the primary objectives of

the shantytown redevelopment in Beijing. Unlike evaluating policy effects using

cost–benefit analysis (e.g., Lee & Chan, 2008; Wang et al., 2013), the spatial

DID approach allows us to identify the causality between urban renewal and

economic activities while controlling for unobservable time- and project-varying

factors. Moreover, the spatial DID approach provides evidence for discussing

whether urban renewal has short- or long-term impacts by capturing the

dynamic effects before and after policy shocks. Finally, we perform several

checks to confirm the robustness of our empirical results.

Our research is related to studies on the externalities of urban renewal. In

urban economics models, the externalities determine the urban renewal efficacy,

as the residents’utility depends on their houses and surrounding buildings.

(Rosenthal, 2008; Rossi-Hansberg et al., 2010; Schall, 1976). Schall (1976)

1

See the “Notice of Preventing Large-scale Demolition and Construction in the Implementation of Urban

Renewal Actions (2021)”published by the Ministry of Housing and Urban-Rural Development of China.

52 ZHANG ET AL.