Valuing the Redevelopment Option Component of Urban Land Values

Real Estate Economics, Forthcoming

59 Pages Posted: 5 Apr 2016 Last revised: 24 Dec 2016

See all articles by Henry J. Munneke

Henry J. Munneke

University of Georgia - Department of Insurance, Legal Studies, Real Estate

Kiplan S. Womack

UNC Charlotte, Department of Finance, Belk College of Business

Date Written: December 23, 2016

Abstract

This study draws from the redevelopment, real option, and urban spatial growth literatures to explore the spatial dynamics of the components of house prices. More specifically, the paper proposes that the capitalized value of the option to redevelop housing at the property level can be estimated by incorporating the likelihood of exercising the redevelopment option (the probability of redevelopment) into spatial and non-spatial hedonic house price models. Accordingly, option values are estimated for properties across the spectrum of the housing life cycle. Results from the study reveal a substantial level of spatial variation and clustering in the predicted option values, indicating that location is a major determinant of redevelopment and real option values. Furthermore, the results provide new evidence in support of the theoretical construct that properties purchased for immediate redevelopment are only valued for the underlying land.

Keywords: urban land values, redevelopment, real options, urban growth, spatial models

JEL Classification: R11, R14, R21, R31

Suggested Citation

Munneke, Henry J. and Womack, Kiplan S., Valuing the Redevelopment Option Component of Urban Land Values (December 23, 2016). Real Estate Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2758725 or http://dx.doi.org/10.2139/ssrn.2758725

Henry J. Munneke

University of Georgia - Department of Insurance, Legal Studies, Real Estate ( email )

Athens, GA 30602-6254
United States
(706) 542-0496 (Phone)
(706) 542-4295 (Fax)

Kiplan S. Womack (Contact Author)

UNC Charlotte, Department of Finance, Belk College of Business ( email )

9201 University City Blvd.
Charlotte, NC 28223
United States
704.687.7584 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
104
Abstract Views
719
rank
268,238
PlumX Metrics