Housing dereliction in a superstar city: future gains, today’s neglect, and disamenity effects

Why do derelict houses persist in urban areas despite strong demand, and what are their effects on neighbourhoods? This paper sheds light on a simple mechanism — speculation over future real estate value increases — that explains this puzzle, and employs empirical strategies to test this mechanism and quantify the disamenity effects of derelict houses. First, we develop a dynamic discrete choice model showing that expectations of future urban regeneration can incentivise property owners to delay redevelopment, thereby prolonging dereliction. Using variation induced by urban regeneration plans in central Tokyo, we find that properties located in designated regeneration areas are 6-14% more likely to be derelict. Second, we estimate the effect of derelict houses on nearby rents using future regeneration plans as an instrument — affecting dereliction but not current rents directly. Our 2SLS results show that one additional derelict house within 80 metres reduces rents by 1.5% on average. The effect is magnified to up to 4.5% in areas with low accessibility to public safety services, suggesting that renters’ concerns about fire and crime risks amplify the disamenity effects of derelict properties. Our findings suggest that rational forward-looking behaviour can reduce effective housing supply and generate negative neighbourhood externalities, highlighting an unintended consequence of place-based urban regeneration policies.