The impact of residential development on nearby housing prices

• DOI: https://doi.org/10.1108/IJHMA-10-2015-0069
• Pages: 671-690
• Published date: 03 October 2016
• Date: 03 October 2016
• Author: Antti Tapio Kurvinen,Jaakko Vihola
• Subject Matter: Property management & built environment,Real estate & property,Housing markets

The impact of residential

development on nearby

housing prices

Antti Tapio Kurvinen and Jaakko Vihola

Department of Civil Engineering, Tampere University of Technology,

Tampere, Finland

Abstract

Purpose – Even as multi-story apartment building development proposals in existing

neighbourhoods represent a substantial component of policy debate at local planning boards, there is

limited evidence for the impact of such residential developments on surrounding apartment values.

This paper aims to address the void in knowledge, and the impact of multi-story apartment building

developments on apartment values in residential high-rise areas located outside city and district centres

is investigated in Helsinki Metropolitan Area, Finland.

Design/methodology/approach – Whether a multi-story apartment building development is

followed by an increase in housing values depends on both positive and negative externalities. To

specify valuation effects of proximate development projects, advanced research design combining

matched sample methodology and hedonic-based difference-in-difference approach is used.

Findings – It appears from the analysis that completion of a single multi-story apartment building has

an immediate positive impact on apartment values within 300 metre radius, while there is no

statistically signicant impact on price trend.

Research limitations/implications – This paper studies apartment values only in Helsinki

Metropolitan Area, Finland, and it is important to notice that local regulations and market conditions

may have a notable impact on the outcomes.

Originality/value – This study is the rst of its kind to provide with statistically signicant evidence

for positive impacts from multi-story apartment building development in Finnish residential high-rise

areas and may have a crucial role in helping to dispel prejudices related to such developments.

Keywords Externalities, Inll development, Real estate development, Residential property values,

Residential real estate, Multi-story apartment buildings

Paper type Research paper

1. Introduction

Inll development has been presented as a solution to reduce the negative effects

associated with urban sprawl. However, residential inll development proposals are

This research was supported by the Housing Finance and Development Centre of Finland (ARA)

from the Development Programme for Residential Areas 2013-2015.

The authors would also like to show their gratitude to the following institutions for supporting

rst author’s doctoral research and visiting period at Georgia State University (Atlanta, GA,

USA): Emil Aaltonen Foundation (Emil Aaltosen säätiö), TES – Foundation Promoting Finnish

Technology (Tekniikan edistämissäätiö), Doctoral Programme in Built Environment (RYM-TO),

KIINKO – Real Estate Education (Kiinteistöalan koulutussäätiö) and Support Foundation for

Research from Tampere (Tamperelaisen tutkimustyön tukisäätiö).

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1753-8270.htm

Impact of

residential

development

671

Received 29 October 2015

Revised 1 March 2016

Accepted 8 April 2016

InternationalJournal of Housing

Marketsand Analysis

Vol.9 No. 4, 2016

pp.671-690

©Emerald Group Publishing Limited

1753-8270

DOI 10.1108/IJHMA-10-2015-0069

often met with controversy and opinionated debate. For the most part, this is a result of

risk avoidance due to uncertainty surrounding the future impact the land use change

would cause for the neighbourhood. Economic theories of externalities provide an

appropriate theoretical framework for investigating the impact of new residential

development on nearby condominium values. Based on the theory, whether the

development impact on housing prices is positive or negative depends on the joint effect

of positive and negative externalities: if positive externalities outweigh the negative,

prices will increase. In this study, the focus is on what kind of impact residential

multi-story apartment building developments have on nearby condominium values in

neighbourhoods built in 1960s and 1970s. The study takes place in the major housing

market in Finland – Helsinki Metropolitan Area (HMA).

An overview on the history of Finnish suburbs provides a motivation for why

apartment buildings from 1960s and 1970s are of special interest. In the 1960s and 1970s,

Finland was experiencing a great societal structural change resulting from late and

rapid industrialization. Furthermore, the industrialization caused fast urbanization, as

people were moving from rural to urban areas, resulting in a notable increase in urban

housing demand. As a resolution to the problem, banks and construction companies

initiated numerous regional development projects to build new large residential

neighbourhoods on the outskirts of cities. Appealing to efciency and nancial benets,

contemporary national regulations urged urban planners and developers to strive for

simplied grid layouts and industrialized serial production. These guidelines and rapid

increase in housing demand resulted in numerous uniform suburban neighbourhoods

dominated by almost identical multi-story apartment blocks (Neuvonen, 2006). The era

spanning from the beginning of 1960s until the end of 1970s has been of great

importance in the development of Finnish building stock: as measured by oor area,

approximately 40 per cent of all current multi-story apartment buildings were

constructed in that period (Ofcial Statistics of Finland, 2016). These declining

suburban neighbourhoods are under scrutiny, as they are simultaneously facing

multiple challenges, such as segregation and technical deterioration. Importantly, the

above-mentioned challenges do not only concern Finland, as along the years, many

European countries have faced situations when a rapid increase in housing demand has

been addressed by highly industrialized serial production of precast multi-story

apartment buildings, e.g. the Million Homes Programme in Sweden (Hall and Vidén

2005).

In an attempt to address the above-mentioned issues, different public policies are

targeted at the neighbourhoods from the era of industrialized serial production of

uniform precast apartment buildings. At the same time, inll development has been

adopted as a policy tool and presented as a potential solution to revitalize depressed

areas. However, inll development is a complex entity which often provokes

different, and opposing, responses from various groups. As the heated public debate for

and against inll is presently fuelled more by feelings than statistical evidence, research

focusing on residential high-rise areas which are built in 1960s and 1970s, and located

outside city centres, is desperately needed.

To recognize areas of interest, two spatial data sets from the Finnish Environment

Institute (SYKE) are used. Based on these two data sets, apartment unit sales

transactions that occur within high-rise residential areas, but outside city and district

centres, are identied. Furthermore, the study is constrained to consider only values of

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