The effect of urban infill residential development on housing prices

Urban residential infill development is a controversial topic in many cities. Supporters point to social value of replacing vacant lots and run-down buildings with housing for residents who help stabilize and improve inner city neighborhoods. Economic benefits include increased property tax revenue. Among the complaints levied is that the houses often overbuild the neighborhood creating McMansions or Starter Castles that are more expensive than the existing neighboring houses, driving up values and resulting in increased property taxes and rents, which may displace elderly and low-income residents who are priced out of the market. To examine the impact that residential infill has on urban neighborhoods, we use a hedonic model to estimate the influence of both scattered and concentrated new construction on the sales prices of existing houses over a 15-year period. We also look at whether construction of homes of larger scale than average houses in the neighborhood has a positive or negative impact on the sales price of existing houses. The results explain the nature and level of influence that residential infill development has on surrounding property values and provide policy guidance as to whether scattered or concentrated infill development will lead to greater positive externalities.