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The Neighborhood Effect of Real Estate Maintenance

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  • Andrey Pavlov
  • George Blazenko

Abstract

We investigate the economics of real estate investment when maintenance of a property enhances neighborhood value. Because a property owner does not recognize this positive externality for his/her neighbor, he/she under-maintains. Smaller properties benefit most from this externality. We show that subsidizing the maintenance expenses of properties can induce socially optimal maintenance. Without disturbing social optimality, the maintenance subsidy can be financed with either a flat tax or a tax that is proportional to the land value or the cost of the improvement. The flat tax is less costly. Commonly used subsidies in the real estate industry based on loan guarantees do not promote socially optimal maintenance. Copyright Springer Science + Business Media, Inc. 2005

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  • Andrey Pavlov & George Blazenko, 2005. "The Neighborhood Effect of Real Estate Maintenance," The Journal of Real Estate Finance and Economics, Springer, vol. 30(4), pages 327-340, June.
    • Handle: RePEc:kap:jrefec:v:30:y:2005:i:4:p:327-340
    DOI: 10.1007/s11146-005-7011-9
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    Cited by:

    1. Lee Seltzer, 2021. "Financing Constraints and Maintenance Investments: Evidence from Apartments," Staff Reports 1000, Federal Reserve Bank of New York.

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    Maintenance; Real Estate;

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