IMPACT OF RESIDENTIAL CONSTRUCTION SITES ON LOCAL HOUSING PRICES

Abstract

This study seeks to investigate the externalities of residential construction sites on neighbourhood housing prices. In spite of traditional concerns over undesirable externalities such as noise and air pollution, various studies have revealed other avenues that construction activity could have an impact on the local housing population. Noting an intensification of construction activity in Singapore, the overall effect would be evaluated in the local context. Using a log-linear hedonic price controlled model base on a Difference-in-Difference(DID) approach, a total of 10,937 non-landed private property resale transaction data from 10 subject sites were selected for the study, examining the price impact at different phases of construction. The evidence shows that construction activity has a consistent and positive effect on the neighbourhood housing prices. Additionally, the positive wealth effect is concentrated at the start of the construction period, with marginal positive effect thereafter. Neighbourhood home prices only started to fall post-construction. The study also points out that the negative externalities of construction sites are capitalized into housing prices for homes located in closer proximity, indicating the relative localized nature of such externalities as compared to the positive amenity effects. Overall, the timing of the positive effect suggests that real estate developers has a significant role in helping existing homeowners benchmark the value of their homes upward when they pre-sell new developments in the construction period.