Resumen de The value of land redevelopment in different types of properties: Considering the effect of hold-out problems on the development probability
Housing price combines the building value and land value of real estate, in which the building value can be measured using its reconstruction cost minus its depreciation. For land value, the future redevelopment value of the land should be considered in addition its present use value. However, the uncertainty of land redevelopment is often high because the development probability is influenced by the benefit of redevelopment and whether an agreement can be reached between landowners. If the influence of these two factors on the likelihood of redevelopment is incorrectly assessed, the land value may be overestimated or underestimated. Hence, this study adopts a real option model to solve the endogenous value of land with redevelopment opportunities. Furthermore, by considering the conflicts of interest between landowners, this study infers that the prices of different types of properties may reflect the land redevelopment value differently. Our inference is that landowners with solely owned houses can redevelop their land at the optimal time without interference from exogenous factors; hence, their land prices should include the redevelopment value calculated based on real options. In contrast, when land ownership is distributed among multiple individuals; hold-out problems emerge, landowners may choose not to undertake redevelopment, and forfeit of the land redevelopment value is plausible. Accordingly, the land value of such real estate can only be estimated based on the cash flow in the current condition. To verify the inferences of this study, in the empirical part of the paper, we use transaction samples from Taipei occurring between 2015 and 2020, which include three types of housing—townhouses (sole ownership of land), apartments (land ownership shared among a few individuals), and high-rise condominium units (land ownership shared among numerous individuals). Using these three types of housing for estimation reveals whether the land redevelopment value of houses is included in their corresponding housing prices, under various ownership concentrations. Subsequently, by using a threshold regression model, the study demonstrates that the likelihood of the existence of land redevelopment value increases with ownership concentration, which contributes to higher housing prices of older houses over time.
