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Research Seminars & Workshops @ IRES

Negative Externalities of Density: My Neighbour's New House

Associate Professor Tsuriel Somerville
Director, UBC Centre for Urban Economics and Real Estate

Date: 23 February 2017 (Thursday)
Time: 3.30 – 5.00pm
Venue: RMI Executive Seminar Room
Chair: Prof Deng Yongheng

Tsur Somerville is an associate professor, Director of the UBC Centre for Urban Economics and Real Estate, and holder of the Real Estate Foundation Professorship in Real Estate Finance at the Sauder School of Business at UBC. His primary areas of research are housing markets, Canadian mortgage markets, and real estate development. He has published in all of the leading journals in urban economics and real estate and served on the boards of the top academic organizations and on multiple academic journal editorial boards in these fields. In addition to his academic research, Somerville is a frequent commentator in the local and national media on housing markets.
Somerville received his Ph.D. in Economics from Harvard University and his BA from the Hebrew University (Israel) in Economics and East Asian Studies and has been at UBC since 1993.

We exploit two types of variation in residential density to identify the possible negative externalities of density on nearby units. First, the general replacement of older lower density single family homes with newer larger units on the same sites. As there is no change in zoning this analysis is not affected by the sample selection problem found in other work. In addition, we control for neighbourhood level variation in prices cross sectionally and over time. The second type of variation in is the construction of small in-fill rental properties on the back of single family properties that face on to a lane. This type of added density differs from the former redevelopment type because in addition to added structure on the lot, it also increases the number of households occupying a property. Comparing the effects of these two different forms of added density on neighbouring properties allows us to estimate the effect of structure density separate from the effect of more households. We find that both forms of density reduce the value of adjacent properties. Replacing an older property with a new redeveloped house raises the value of adjacent properties by 7 percent, reflecting the spillover benefit of having newer higher quality structures adjoining one's property. However, if a new unit raises the density from the 25th to the 75 percentile, this would offset this gain by lowering the value of an adjacent property by 2.2%. An infill laneway property lowers the value of an immediate neighbour's properties by 2%, separate from the effects it has by adding structure density, which would be an additional 2% for the mean property adding the mean infill unit, so that the total effect of a laneway infill on adjacent properties is negative 4.2%.

For more information please contact IRES at 6516 8288 or 6516 6947

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