Developers' price setting behaviour in urban residential redevelopment projects

Abstract

Purpose – This paper aims to investigate whether developers’ ask lower prices on homes in redevelopment sites than they do on similar units in smaller developments completed over a shorter time span. It also investigates whether developers price units differently at different stages of the redevelopment process. The development of designated redevelopment areas often consists of multiple projects spread across several years, some in parallel, some sequential. New units are put on the market in a piecemeal fashion, and infrastructure, shared green spaces and shared facilities are installed successively. Design/methodology/approach – A hedonic price model is used to analyse sales prices of 7,000 new apartments in Oslo sold between 2011 and 2015, all else being equal. The paper distinguishes between infill as one-stage projects, and multi-staged competitive and multi-staged monopolistic redevelopments. Findings – Dwellings in redevelopment projects sell at a lower price than similar dwellings in infill projects. In competitive redevelopments, those in charge of the last projects put a slightly higher price on apartments. In redevelopments involving only one developer, the last stages ask the lowest prices. Research limitations/implications – This research expands our understanding of developers’ pricing behaviour. Developers supplying housing for the private market through redevelopments land are willing to take risks particularly in the initial stage. Practical implications – The findings indicate that credit institutions financing developers’ projects need to take into account the structure of selling prices, including lower prices and higher risk of pursuing redevelopment projects. Social implications – Gaining a better understanding of developers’ pricing behaviour deepens our insights into the dynamics of market-led urban brownfield developments; this knowledge may moreover inform policies on sustainable urban growth.