The spillover effect of urban renewal on local housing prices: Case Myllypuro

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School of Business | Master's thesis
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In this paper, I empirically examine the spillover effects on local housing prices of an urban renewal program done in Myllypuro, a suburb in eastern Helsinki. I use the dismantling and construction of a new shopping center as the treatment in a differences-in-differences (DID) empirical study and compare the prices of apartments in old multistory buildings from 1960s and 1970s close to the shopping center in Myllypuro to apartments in two different areas. First, I compare prices near Myllypuro's shopping center to prices farther away from the shopping center around and inside Myllypuro, and second, to prices near similar shopping centers in other comparable neighborhoods. I find that prices within 400 meters from the new shopping center in Myllypuro grew considerably faster, at 11 to 15 percent, compared to areas farther away from the center over a ten year period. In addition, the second model provides positive results. I find that apartment prices within 800 meters from Myllypuros's new shopping center grew considerably faster, at 4 to 16 percent, compared to the similar apartments in the same distance band from shopping centers in control neighborhoods of Kontula, Vuosaari, Itäkeskus and Mellunmäki also in eastern Helsinki over the same ten year period. However, whether the increase in prices is due to the new shopping center is a trickier question. The results from comparing prices near the shopping center seem convincing and the common trends assumption seems plausible. On the other hand, the results from the neighborhood comparison should be considered as more descriptive than causal as the common trends are not as evident. Literature strongly suggest, that when there are positive spillover effects from urban revitalization programs or infill development meaning construction of new houses in undeveloped parcels, the effect is usually strongest near the development. Furthermore, in addition to the new shopping center, the amount of infill development has been considerably larger in Myllypuro compared to close-by neighborhoods. It can be concluded that the dismantling of the old building and construction of a new shopping center along with other urban renewal actions can be seen as driving forces in contributing to the superior growth rate in price in Myllypuro relative to neighborhoods that previously were comparable to it.
Thesis advisor
Saarimaa, Tuukka
urban renewal, infill development, difference-in-differences, hedonic regression, spillover effect