Do property rehabs affect neighboring property prices?

We examine the effect of real estate owned property rehabilitations on neighboring property prices. We find that house prices around a rehabilitated property increase 2.3 percentage points following the rehabilitation. Moreover, the average rehabilitation generates aggregate welfare benefits 3.8 times greater than the amount invested. Rehabilitation externalities are stronger for longer rehabilitations and greater rehabilitation investments, and they are prevalent even in areas with high rates of foreclosures. The spillover effect of rehabilitations operates through their salience rather than through a reduction in the supply of distressed properties, through property appraisals, or through homebuyers with higher income moving into the neighborhood.

Duke Scholars

Author Gonzalo Maturana Fuqua School of Business